With increasing financial pressure on businesses and individuals alike, the High Court’s recent judgment in James Ward Trustee Company Limited v Jarm[1] (“James Ward”) serves as a reminder of the importance of prioritising paying rent and the consequences of failing to do so.
Background to the case
James Ward concerned 3 sublessees who failed to pay rent over the period of a year. The properties were subleased from James Ward Trustee Company Limited (“Landlord”) and were leased by Mr Jarm, Ms Yin and Mr Jarm jointly, and Mr Ripia (“the Lessees”). These properties were apartments, and rent was payable in quarterly instalments to the Landlord. The quarterly rent, including GST, for the three properties was:
- Jarm Property: $6,637.24;
- Jarm/Yin Property: $5,544.73; and
- Ripia Property: $4,763.62.
Jarm and Jarm/Yin failed to pay rent on 2 May 2024, 2 August 2024, 2 November 2024, and 2 February 2025. These defaults, in conjunction with previously owed rent arrears, totalled $61,284.75 in unpaid rent. Separately, Mr Ripia’s unpaid rent amounted to $23,818.10.
Applicable legal principles
Under section 244 of the Property Law Act 2007, the landlord has the right to cancel the lease. The landlord can exercise the right to cancel the lease if the rent is overdue for no less than 10 working days. The Landlord may then serve on the Tenant a notice of intention to cancel the lease. The notice must specify how long the Tenant has to remedy the unpaid rent, which can be no less than 10 working days. The Landlord then has a right to cancel the lease if after the expiry of the notice period, the rent has not been paid.
For the two Jarm properties, the default notices were issued on 19 April 2024 and were acknowledged as received on 13 May 2024 by Mr Jarm. For the Ripia property, the default notices were issued on 13 September 2024 and were acknowledged on 16 September 2024 by Mr Jarm. All 3 notices expired 28 days after the date of service with the defaults remaining unremedied.
After the notice expired, James Ward applied to the District Court under section 244(1) of the Property Law Act to cancel the leases. Under section 245(1), the Landlord was entitled to damages for the unpaid rent of the Tenants. The Landlord was also entitled to claim operational costs and legal services relating to default and enforcement came from a clause in the sublease agreements. This was also subject to interest at the rate of 25.45%.
By the time judgment was delivered on the rent arrears, the Lessees were in a worse position than if they had dealt with the matter promptly. They incurred legal costs and interest on the money owed.
The total legal costs and disbursements that were incurred in respect of each property included:
- Jarm Property: $6,368.00;
- Jarm/Yin Property $6,432.93; and
- Ripia Property: $6,236.66.
The interest that was incurred on the damages from the accruing rent and outgoing expenses included:
- Jarm Property: $4,908.42;
- Jarm/Yin Property $4,162.80; and
- Ripia Property: $3,330.21.
Key takeaways
In total, the Lessees incurred $31,439.02 in legal costs and interest. These costs are often avoidable if tenants engage with their landlord soon after they become aware they will not be able to pay some or all of the rent. There are a number of potential options when a tenant is financially distressed, and landlords are often willing to consider one or more of these options in lieu of taking formal steps to cancel the lease under the Property Law Act. Please refer to our earlier article on this subject for a fuller discussion of the options available to struggling tenants.
Ford Sumner regularly assists clients across all areas of commercial leasing. If you think you may not be in a position to pay rent, or would like wider leasing assistance, please do not hesitate to contact Sarah Churstain or Jordan Todd to discuss your options.
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[1] James Ward Trustee Company Limited v Jarm [2025] NZHC 937.