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Auckland property developer wins court battle over sale of inner-city commercial block

11 Aug 2023

| Author: Vivian Mitchell

Sale and purchase of tenanted property – claim for balance of purchase price – misleading and deceptive conduct – breach of warranties – Fair Trading Act 1986

Premier Property Developments Ltd v OHL Ltd [2023] NZHC 1962 per Jagose J.

 

This case was a successful claim by Premier Property Developments, the vendors of a 14-storey, unit-titled commercial property on Auckland’s Kitchener St, against the purchaser, OHL.

OHL, a company associated with former Hanover Finance director Mark Hotchin, refused to pay the final $692,000 outstanding on the $3.5 million purchase price.

Instead, OHL brought a counterclaim for damages under the Fair Trading Act 1986 and for alleged breaches of warranties due to Premier’s representations about the property’s tenancies and ventilation plant.

Premier said any loss suffered was due to OHL’s contributory negligence and failure to mitigate.

OHL claimed there had been misleading and deceptive conduct in regard to representations about the property being fully leased. OHL also argued there were misleading and deceptive representations about the annual rent return.

Both these claims were premised on the fact that one of the tenants, Buza, had been given a rent reduction and had paid only one-third of what was due. Before the sale, Buza had stopped paying rent altogether.

OHL argued there were breaches of contractual warranties and alleged there was a misdescription of the property under clause 6.4 of the sale and purchase agreement, a failure to disclose a notice by a tenant for a leaking air conditioner under clause 7.1(1), a breach of clause 7.2(1) for warranting that the air conditioning and ventilation plant were in reasonable working order, and a breach of clause 7.1(2) for failing to disclose consent to the tenant’s reduced rent.

Misleading and deceptive conduct
The court found Premier’s representations were misleading and deceptive in that it described the property as being fully tenanted and gave a misleading annual rent return.

However, the court found OHL was not misled or deceived. Jagose J was unable to find Premier’s conduct was the effective cause of any loss or damage. This was because OHL had been previously informed by Colliers (on Premier’s behalf) that Premier was subsidising Buza’s rent at a rate of about 40%. While understated, the advice gave a clear indication to OHL that the information memorandum could not be relied on, the court said.

Warranties
The court found a breach of clause 7.1(2). Premier’s waiver of Buza’s rent had affected the description of the property, including its tenancy schedule. This was not disclosed to OHL in writing.

The court found Premier was liable to OHL for the amount of Buza’s rent from the period between OHL acquiring the property and the expiry of Buza’s lease. But while Premier was found liable, it had already offered a rent underwrite, which would have precisely covered OHL’s loss. So, it was reasonable for OHL to accept the rent underwrite for this breach.

Applicable principles: misleading and deceptive conduct – interpretation of ADLS standard form clauses – principles of mitigation and compensation.

Held: Premier could recover the balance of the purchase price, together with interest.

 

Vivian Mitchell is an LLB/BA graduate.

Premier Property Developments Ltd v OHL Ltd [2023] NZHC 1962

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