A recent High Court case Nuttall Properties Limited v Corcoran [2023] NZHC 2522 warns landlords not to allow tenants to accumulate large quantities of goods on their premises, especially if those goods are hazardous or are difficult to remove.

Background

The facts of the case are as follows. Nuttall Properties Limited (‘Nuttall’) owns an industrial property in Christchurch comprising three areas, being Areas A, B and C. Nuttall leased Area B to the tenant company ERP Group Limited (‘ERP’). ERP ran a waste disposal company and required Area B to store bales of waste until they could be disposed of at a waste energy plant that was soon to be constructed.

The Agreement to Lease was signed on 25 March 2021 by Nuttall and ERP’s only director Mr Corcoran, who also personally guaranteed the lease (‘Agreement’). Although the parties never signed a formal Deed of Lease, the Agreement bound the parties to the terms of the ADLS standard form Deed of Lease. The lease commenced on 30 March 2021 and expired on 29 January 2022.

During the term of the lease, ERP proceeded to collect and store thousands of waste bales on Area B. In November 2021, Nuttall’s insurance provider advised that, unless all waste bales were removed from Area B before the expiry date, the landlord’s insurance cover would lapse. Nuttall gave ERP notice on 2 December 2021 that it must vacate Area B and remove all bales before the expiry date of the lease.

On 11 January 2022, with less than three weeks of the lease term left, ERP gave notice to Nuttall’s real estate agent that it would not be able to vacate the premises by the expiry date. A few days prior to expiry, it was clear that ERP was not in the position to move the remove the bales from Area B in time. Nuttall agreed to allow ERP to move the bales into the adjacent yard, Area A, which was not part of the leased premises.

Between the end of January 2022 and early April 2022, the bales were moved to area A. In early May 2022, ERP was placed into liquidation. As at the date of liquidation, Nuttall were owed NZ$53,859.62 (incl GST) for the outstanding rental and outgoings. Nuttall also argued they were unable to generate income from Area A whilst the bales were stored there, which was a loss of NZ$92,288.70. 

The most significant claim related to the cost of cleaning up and removing the mountain of waste bales from the land. Between December 2022 and July 2023, Nuttall incurred costs of NZ$2,831,007.90 (incl GST) in removing the bales that were now piled up on Area A. Once ERP was in liquidation, Mr Corcoran walked away from his obligations under the lease. In total, Nuttall’s claims amounted to NZ$2,977,156.22.

With ERP in liquidation, the prospect of recovering any or all of this amount from the company appeared slim. Nuttall decided to instead pursue Mr Corcoran personally via the guarantee. 

High Court Decision

It was fortunate for the landlord that Mr Corcoran provided a personal guarantee for ERP’s obligations under the lease, through which Nuttall could claim the value of NZ $53,859.62 for the outstanding rent and outgoings.

The Court then considered whether ERP had complied with its lease obligations by moving the bales to Area A. The Court found that ERP was not being granted any formal right to store the bales on Area A beyond the expiry of the lease. Instead, ERP was required to vacate all areas of land, including area A, owned by Nuttall from the expiry of lease. As the relocation of bales from Area B to Area A took until April 2023, the Court found that this clearly breached ERP’s obligations under the lease.

Accordingly, Mr Corcoran was found to be personally liable in trespass for moving the bales onto Area A after the lease expired. Because he intentionally breached his obligations under the lease, Mr Corcoran could not avoid personal liability by asserting he was acting in his capacity as director for ERP. Nuttall was, therefore, successful in its claims amounting to NZ$2,977,156.22.

Key takeaways

This case highlights the need for a landlord to set very firm expectations if they are concerned that a tenant may have difficulty complying with their obligations at the expiry of the lease. The tenant must be aware they are expected to comply with all obligations under the lease, and that the tenant may need to commence reinstatement and/or removal of chattels well in advance of the expiry of the term if significant action is required. If the landlord makes any concessions to the tenant to help them comply with their obligations, it is crucial they set clear conditions and reserve all their legal rights as landlord.

This case also illustrates the importance of obtaining a personal guarantee from one or more directors of a tenant company or, better still, a bank guarantee. Without a guarantee, the landlord would struggle to recover any of its losses if the tenant is subsequently placed into liquidation or administration. Despite Nuttal being successful in court, there is still no guarantee that its substantial removal debt will be recovered. It is vital that the landlord obtains security for the tenant’s obligations.