Beware selling commercial property when your tenant is in default

June 15, 2016

in Corporate & Business,Property

key of dream houseA recent High Court case, Mitre10 (New Zealand) Limited v Thistle Dome Holdings Limited, has said that when a landlord sells a property and transfers title to a new owner, the earlier landlord cannot maintain any proceedings about their rights under the lease once title transfers.

The Property Law Act does allow the previous landlord to maintain proceedings after transfer of title if a contrary intention appears or there is agreement between the previous landlord and the new one, but the Judge found that those circumstances were not present in the Mitre10 case.

This recent decision is significant because it is contrary to a 2008 decision that was also from the High Court, Patel v Digital Printing Group Limited, which said that if the proceedings were started before title transferred the previous landlord could maintain the proceeding after transfer.

In Mitre10 the Judge noted that if a previous landlord could maintain proceedings after transfer, a tenant could be at risk of having to pay twice.  The facts in Mitre10 involved a breach of the tenant’s obligation to maintain the property. If the previous landlord recovered damages for the devaluation, the maintenance would still be outstanding and the new owner could sue the tenant to carry-out the maintenance.  In terms of an obligation like maintenance, the decision makes sense.  It is harder to understand in terms of unpaid rent.

This raises the potential for Mitre10 and Patel to be distinguished on the basis that Mitre10 involved a risk of double recovery whereas Patel did not.  It may then be that both will stand as good law in their respective contexts.  However in reality we will have to wait for a Court of Appeal decision to clarify which view is correct.  In the meantime prudent practice would be to assume that the previous landlord cannot maintain a proceeding under the lease once they have transferred title to someone else unless a contrary intention or agreement exists.

The ability to bring or maintain proceedings where there is a contrary intention or agreement between the previous landlord and the new means that there are some prudent steps that can be taken in selling your property to make sure you keep your right to recover from a defaulting tenant.  It also means that rather than sign an agreement presented to you on the spot, you should discuss it with your lawyer to make sure you don’t accidentally give up your rights.

There are also important strategic considerations for tenants and purchasers in these circumstances as the interests of previous landlord, tenant, and purchaser, can all be different.

If you require any advice or further information on the matters dealt with in this publication please contact the lawyer at Farry and Co. who normally advises you, or alternatively contact:

Wallace Revell
09 379 0055 or 03 477 8870


The information contained in this publication is intended as a guide only. It does not constitute legal advice and should not be relied upon as such.  Professional advice should be sought before applying any of the information to particular circumstances.  While every reasonable care has been taken in the preparation of this publication, Farry and Co. does not accept liability for any errors it may contain. 

Previous post:

Next post: