Daisy Chain Preschool Ltd (DCP) has been in the business of providing education, care and a safe environment for under-fives since 2015. Its business plan is based on being able to cater for 70 children. However, in 2018 the Ministry of Education promulgated revised licensing regulations setting out the minimum floor space and access requirements for given numbers of children. The effect of these regulations is that, in its current premises, DCP will be restricted to enrolling no more than 55 children.

DCP’s CEO, Maria, is tasked with seeking out new accommodation for lease in the Auckland CBD. In June 2019 Maria sees an advertisement in The Commercial Property Press setting out the specs for the elite top floor of a mixed-use six storey building in Marsden Avenue which looks promising. On a cold, gloomy day Maria makes a site visit to inspect the premises and meets with Hemi, the property manager for Marsden Avenue Ltd (MAL) which owns the building.

The size of the premises, their general location and configuration, are what DCP need but Maria says to Hemi that she is particularly attracted by the statement in the advertisement that MAL is planning to install “a second lift to the premium 6th floor”. She states that adequate lift access has been a major issue in the search for new premises and mentions that she has had to say “no” to a number of premises because of “the lack of dedicated lift access”. She explains that, given the very limited parking that will be available to parents when dropping off and picking up their children at the Marsden Ave site, an express lift is needed especially at peak times.

Hemi says to Maria “all that sounds good” and tells her the plan is to have the second lift installed within 9 months. He explains the installation is about a 3-4 month job. Maria responds that DCP could make do with the current access for nine months but no longer.

Later that day Maria reports back to the Board of DCP informing it that, with two lifts “one of which will provide dedicated service to the top floor”, the premises are just what DCP is looking for.

Following further discussion and negotiation on the terms and conditions, in October 2019, DCP agrees to take a 6-year lease on the premises with rights of renewal. To take account of the premium character of the 6th floor, DCP agrees to pay a standard floor rental of $150 per square metre ($3,000) plus a premium of $20 per child enrolled per week.

DCP insists that the lease include a provision relating to the provision of a direct lift.

Hemi drafts an additional clause 5(A) which states: “The Landlord warrants to install at its sole cost and expense a second lift in the building in which the Premises are located providing access to the Premises by 31 July 2020 at the latest.”

DCP signs the lease agreement and takes possession of the premises in November 2019.

1. (a) Examine fully whether the lease comes to an end in the following circumstance –

MAL has difficulties raising the finance to install the lift and that, at the end of May 2020, the building consent application* has only just been lodged with the Council. It is clear to DCP at that point that the lift will not be installed by 31 July 2020. On 1 June DCP finds more suitable alternative premises and wants to get out of the agreement.

*You can assume that an application for a building consent on average takes around three weeks to be approved.

2. (b) Assume for this part of the question that the time for installation of the lift is not of the essence. Explain briefly whether the lease comes to an end in the following circumstance –

On 25 March 2020 New Zealand is moved to Alert Level 4 because of COVID-19 and stays in lockdown until 27 April. During that time no work takes place on the installation of the lift. On 1 August the installation of the lift is at least a month away from being completed. Having discovered that more suitable – and much less expensive – alternative accommodation is now available as a result of the impact of COVID-19 on the commercial rental market, DCP advises MAL that it considers the agreement to be terminated on the basis of frustration.

QUESTION TWO

Assume for the purposes of this question that a second lift is installed as promised. Assume also that DCP has spent $300,000 on an extensive refit. DCP discovers that the lift is programmed to stop at all levels at all times and DCP’s customers experience long waiting times for the lift. MAL refuses to adjust the settings to provide an express lift to the 6th floor at the critical times. MAL points out that it needs to provide an efficient lift service for all its tenants and that the agreement only requires a second lift to be provided. DCP says that the agreement requires MAL to provide dedicated lift access to the 6th floor at peak times and wants the lift’s programme settings to be changed to achieve this outcome.

Required:

(a) Examine fully, with reference to the authorities, the interpretation arguments of DCP and MAL respectively.

Please include your name and student ID as a header or footer to your completed assessment. (b) Assuming that the court finds in favour of DCP, is it likely to make the order

which DCP wants? Explain.

QUESTION THREE Part (a)

Assume for the purposes of this question that the advertisement in The Commercial Property Press describes the premises as “modern, state of the art amenities . . . spacious, light and airy” and states that the premises have a floor area of “approximately 200 square metres”. During the site visit in June Maria asks about the other tenants in the building. Hemi replies, “We have very desirable tenants including a design company, a barristers’ chambers, and a coffee salon”.

When DCP takes possession of the premises it discovers the following –

• The large sky lights cause the space to be unbearably hot during the afternoon in summer when the sun is higher. The air-conditioning system is not able to cope.
• The floor area is only 180 square metres which will mean that DCP will be limited to 65 children under the Ministry of Education regulations.
• Three weeks after Maria makes her site visit, Hemi finalises an agreement to lease space on the fifth floor to Maison Close an upmarket brothel following two months of intense negotiation. The brothel opens for business in December 2018. The presence of the brothel causes some parents to make alternative child care arrangements.

Required:

Examine fully which, if any, of the statements made prior to the lease being signed are actionable.

Note that for the purposes of this question you are not required to consider whether cancellation is possible under the CCLA.

Part (b)

Assume that the lease contains the following clause 7 –

“The Agreement contains all of the terms made between the parties with respect to its subject matter and supersedes all prior discussions and agreements relating thereto.”

Required:

Explain fully what impact, if any, this clause would have on your discussion above.

As part of the fit out of the premises, DCP puts in a new kitchen. Maria contacts her usual plumber, Faucet and Tapp Ltd (F & T), to install some new appliances. Maria has dealt with F & T over a period of some 10 years in her personal capacity and on three occasions over this same period has called in F & T to deal with plumbing issues at DCP’s previous premises. F & T agrees to supply and install a gas oven, a commercial fridge freezer and a water filter system. Unfortunately, due to the carelessness of one of F & T’s employees, the joints on the water filtration unit fails, causing major flooding overnight. The water seriously damages the newly laid hardwood floor and seeps through to the brothel below. The total cost of the damage is $70,000.

The clause below appears on the reverse of the invoice which F & T’s employee left on the bench once the installation was completed.

“The extent of the Company’s liability under this agreement is limited to the cost of repair or replacement of faulty products. The Company shall not be liable for any losses, damages, costs or expenses whatsoever which may be suffered by the customer or any other person”

Required:

(a) F & T seeks to rely on the clause and claims that its only liability is the cost of installing a new filter system – around $1200. Explain fully the arguments that it will

make in support of this contention.

(b) Assume for this part of the question that the clause is part of the agreement between F & T and DCP. DCP claims that the wording of the clause does not exclude liability for negligence. Explain fully whether you consider that DCP is correct.