Relief Against Forfeiture in Commercial Leases: A Case Study of Mulholland v Waimarie Industries Ltd [2009] NZHC 707

Introduction

  1. The High Court decision in Mulholland v Waimarie Industries Ltd [2009] NZHC 707 offers valuable guidance on the application of relief against forfeiture under sections 253–254 of the Property Law Act 2007. It addresses the delicate balance between a landlord’s right to enforce lease terms and a tenant’s plea for equitable relief amidst financial distress.

  2. This case involved a tenant in significant rental arrears seeking to avoid eviction by promising future payment and business restructuring. Ultimately, the Court sided with the landlord, refusing relief due to the tenant’s uncertain financial prospects and history of default.

  3. This article explains the background of the dispute, summarises the High Court’s reasoning, and highlights key takeaways for both commercial landlords and tenants in New Zealand.

Background of the Dispute

  1. The plaintiff, Westhaven Investment Partnership (referred to as Westhaven), was the landlord of Unit B, 11 Parkhouse Road, leased to the defendant, Waimarie Industries Ltd (Waimarie), under a standard ADLS lease signed in April 2005.

  2. The lease had a six-year initial term with two three-year rights of renewal and an annual rent of $55,200 + GST. Waimarie conducted business involving the packaging and storage of health and food products on the premises.

  3. Despite also leasing an adjacent unit (Unit 11C), Waimarie struggled with payments. The lease on Unit 11C was eventually cancelled in 2008. The landlord then issued a notice of cancellation and re-entry for Unit 11B in January 2009, citing unpaid rent of over $16,000.

  4. Although some payments totalling $12,300 were made subsequently, no further payments occurred. By the time of the hearing in May 2009, rental arrears had ballooned to $28,617.93, excluding interest and legal costs.

Tenant’s Application for Relief

Waimarie applied to the High Court under s253 of the Property Law Act 2007, requesting relief against cancellation of the lease. The company argued that it would be able to clear the arrears within three weeks based on either:

  • A conditional agreement for a sale and restructure involving a potential investor, Mr McHerron.

  • A loan from a finance company as a fallback option.
  1. The proposed deal with Mr McHerron involved him injecting $160,000 in exchange for a 60% stake in a new company that would acquire Waimarie’s assets, repay debts (including rent), and continue operations at the premises.

  2. Waimarie contended that eviction would sabotage the deal, lead to liquidation, and result in no recovery for the landlord—thus, relief was in the mutual interest of both parties.

Landlord’s Objections

  1. Westhaven opposed the application, citing:
  • A history of persistent defaults throughout the lease term.

  • The uncertain and speculative nature of the proposed payment plans.

  • Unfairness in being burdened with an unreliable and financially unstable tenant.
  1. Notably, the Court discovered that another creditor had filed for Waimarie’s liquidation—a fact not disclosed by the tenant, raising serious concerns about its financial integrity.

Legal Framework and Principles

  1. The Court examined the established principles for granting relief against forfeiture:
  • Where arrears are paid in full, relief is typically granted unless exceptional circumstances exist.

  • Relief is an equitable remedy, and mere suspicion of insolvency does not bar relief.

  • However, when the tenant is clearly insolvent or unable to demonstrate a high level of certainty regarding future payment, relief is likely to be denied.

  1. Justice French noted that forfeiture is viewed as security for payment, not an automatic entitlement to possession unless equitable principles are breached by the tenant.

Court’s Reasoning and Decision

  1. The Court ultimately denied relief and granted possession to Westhaven, concluding that the tenant’s proposal lacked the certainty required to justify equitable intervention.

  2. Several factors influenced the decision:
  • The lack of actual payment of arrears at the time of the application.

  • The vague and overstated nature of the proposed rescue plan.

  • Evidence indicating the bank was contemplating enforcement action, and the active liquidation proceedings confirmed Waimarie’s parlous financial state.

  • The lease had already been partially terminated (Unit 11C) previously due to non-payment.
  1. The Court acknowledged Mr Lee’s sincerity but ruled that it would be inequitable to “have Waimarie inflicted on [Westhaven] as a tenant on an ongoing basis”.

  2. Costs of $5374 + GST plus $478.75 in disbursements were awarded to Westhaven, in line with its contractual rights to full solicitor-client costs under the lease.

Key Learnings from the Case

  1. Relief against forfeiture is not automatic: Tenants must present compelling, reliable evidence of their ability to pay rent arrears and resume ongoing obligations under the lease.

  2. Timing of payment is critical: Courts are more inclined to grant relief where arrears have already been paid or there is near certainty of immediate payment.

  3. Disclosure matters: Failure to disclose material facts—such as concurrent liquidation proceedings—can undermine a tenant’s credibility and influence the Court’s decision.

  4. Repeated defaults weaken tenant’s position: A history of non-payment can be decisive, especially when combined with weak prospects of financial recovery.

  5. Landlords are not obliged to bear ongoing financial risks: The Court is reluctant to impose insolvent or unreliable tenants on landlords, even if doing so may increase the chance of rent recovery.

Conclusion

  1. The decision in Mulholland v Waimarie Industries Ltd demonstrates how the New Zealand High Court balances equitable principles with commercial realities in landlord–tenant disputes. It reinforces the notion that tenants in financial distress must bring more than good intentions—they must bring certainty and evidence.

  2. For landlords, the ruling is a reminder of the importance of properly documenting defaults and using statutory procedures under the Property Law Act 2007 to regain possession efficiently.

  3. For tenants, the case serves as a cautionary tale—hope is not a strategy, and legal relief requires full transparency, prompt action, and solid financial backing.

This article does not constitute legal advice. If you need assistance with your case, please book a consult with our law firm.

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