Navigating Leases, Caveats and Development Rights

The recent case of Marsden Resorts Ltd v Shine Family Trustee Co Ltd highlights key considerations for commercial landlords, developers and tenants and the importance of understanding the intricacies of leases, caveats and development rights where involved with property development. Here's what you need to know.

Case Overview

Marsden Resorts Ltd (Marsden) operates the Castaways Resort in Waiuku on land partly owned by Shine Family Trustee Co Ltd (Shine). Their contractual relationship was based on a number of agreements including an agreement for sale and purchase and a deed of lease. In March 2023, Marsden lodged a caveat over Shine's land as it was concerned that Shine may sell or otherwise part with all or part of its property causing Marsden to lose some of its rights under its lease. A caveat is a notice, lodged against a title to a property, preventing the title being dealt with (e.g. sold) without the consent of the party who lodged the notice. Shine contested this in the High Court, claiming that Marsden had no legitimate caveatable interest. The Court held in favour of Marsden, upholding Marsden's right to lodge the caveat.

This ruling has important implications for commercial property landlords, tenants and developers.

Key Takeaways

Understanding Caveatable Interests

The case clarified that even unregistered leases can provide a tenant with the right to lodge a caveat against their landlord's title (provided the lease does not expressly prohibit this). For tenants, this can be advisable if you are concerned that your landlord may sell or transfer the property without the incoming owner having to honour your lease or where the property is important strategically and/or you have a significant investment in the property (such as improvements). For landlords who may want to deal with their property during the course of the lease, you will want to ensure the lease excludes or limits the tenant's ability to lodge a caveat, especially when future development plans are on the horizon.

Clarifying the Scope of the Lease

The court's ruling emphasised the importance of clearly defining the leased premises. The lease in this case contained unclear definitions of the premises and ancillary rights. The landlord argued that the lease only related to the buildings, but the court held that the lease also extended to other essential areas like car parks and access ways. The ambiguity in the way the lease was drafted caused dispute. Both landlords and tenants should ensure that the lease is clear as to which areas are within the leased premises (and exclusive) and which are incidental such as access rights and common areas. Landlords will want to ensure that the lease allows it to deal with (e.g. redevelop) any areas outside the defined premises without tenant interference. Conversely, tenants will want to ensure that any incidental areas (outside the leased premises), which remain essential to their right to use and enjoy the premises, are entrenched in the lease so that the landlord may not deal with them (e.g. redevelop) without the tenant's permission.

Addressing Subdivision and Development Rights

The case underscored the necessity of clearly defined consent requirements regarding future developments. Marsden's rights to withhold consent were upheld, highlighting that vague lease terms can complicate development plans. Tenants may want to negotiate lease provisions allowing them to withhold consent for developments that would detrimentally impact their business. Landlords, on the other hand, should negotiate broad development rights into their lease if they intend to redevelop all or any part of their land during the term of the lease. They should also bear in mind, however, that such development rights may have a downward value impact on market rent for the property (unless the lease is drafted so as to prevent that).

Emphasizing Proper Documentation and Planning

The lack of precise documentation, such as a well-defined lease plan which clearly outlined the boundaries of the premises and ancillary areas, contributed to the parties' dispute in this case. Ensuring that all plans and documentation are detailed and unambiguous limits the potential for conflicts.

Conclusion

Marsden Resorts Ltd v Shine Family Trustee Co Ltd illustrates how tenant rights can delay or complicate development projects. Marsden's caveat effectively halted Shine's development plans, demonstrating the importance of carefully negotiating lease terms. It is important for landlords to negotiate lease terms that protect their ability to develop, sell or transfer property if they may want to carry out such activity. Tenants should ensure their rights to use and enjoy the premises are not hindered by a landlord's rights to deal with its land unless this is expressly agreed.

1. [2024] NZHC 1947