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Is a first right to purchase a caveatable interest in land?

22 Sep 2023

| Author: Andrea Hilton

Property Law Act 2007, ss 24-26 – Land Transfer Act 2017, ss 138, 142-143 – Evidence Act 2006, ss 4, 16-18 – High Court Rules 2016, r 9.76(1)(d) – caveatable interest – constructive trust – first right to purchase –contract – doctrine of part performance – Lanklow v Rose [1995] 1 NZLR 277 (CA) – Philpott v Noble Investments Ltd [2015] NZCA 342

Stills v McCormack & McCormack [2023] NZHC 2224.

 

An unsuccessful application under s 143 of the Land Transfer Act 2017 to sustain a caveat lodged against the title of land known as Lot 2 at Little Akaloa in Canterbury.

Robert and Elizabeth McCormack purchased Lot 2’s fee simple from Church Property Trustees (CPT), which is part of the Anglican Diocese, but were prevented from registering their transfer by a caveat lodged by Andrew Stills.

The Stills family were lessees under a bare land lease of Lot 2 from CPT for 46 years. Initially, Stills’ parents were the registered lessees but in 1996 the lease was transferred to Stills and his brothers. The lease was due for renewal in 2001. Instead of renewing, Stills entered into a new lease in 2001. This lease was due for renewal in 2022. Stills’ mother continued to live in Lot 2.

The first lease included a right of access over Lot 14, (owned by the McCormacks), the right for lessees to build on the land and provision for the lessees to be compensated for improvements to the land if the lease was not renewed or expired. At some stage, a dwelling was erected on Lot 2.

The second lease did not include the right of access over Lot 14. CPT took steps to correct this; initially, the McCormacks had refused to recognise the historical access rights. Neither the first nor second lease included an option to purchase or a right of first refusal.

Around 2020, the McCormacks, who occupied Lot 14, also under a registered lease, expressed an interest in purchasing the fee simple of Lot 2. Stills was aware of this and indicated he was prepared to sell the lease to the McCormacks.

Stills’ mother completed some renovations and additions around 2000 but died in 2018. Between 2018 and 2021, Stills explored various options to deal with Lot 2, including selling the lease, transferring it to CPT or buying the fee simple.

During this time CPT was still attempting to resolve the access issue. In 2019, CPT and Stills had not reached any agreement over Lot 2 but the parish of Akaroa resolved to sell the fee simple of Lot 2.

After further exchanges with Stills, CPT contacted him and the McCormacks with a form to use to make an offer by 15 October 2021 to purchase the fee simple of Lot 2. Stills did not make an offer by deadline; the McCormacks did and purchased the property.

Stills’ caveat claimed CPT was trustee of a constructive trust benefiting him because he had an equitable interest in Lot 2 as a leaseholder and improver of the land, with a promised or implied first right of purchase at a fair price.

Stills produced evidence that his mother owned the right. Despite the caveat’s wording, his claim was limited to an institutional constructive trust based on the first right to be offered Lot 2 at a fair price granted to Stills’ mother, the previous lessee.

 

Applicable principles: whether an interest in land exists – whether reasonably arguable case exists – whether a first right to purchase is a caveatable interest – whether an event triggers a caveatable interest – whether a constructive trust exists – whether a constructive trust creates caveatable interest – whether caveat cannot be maintained – whether court should exercise discretion – whether beneficial interest exists – whether contribution to property improvement occurred – whether reasonable expectation of interest – whether there is a contract – whether right to purchase was in writing.

 

Held: Application is dismissed; the caveat was lapsed.

There was insufficient evidence that Stills’ mother was granted the first right to purchase Lot 2. A first right is personal property and there was no evidence the right had passed to Stills. While a first right can be a caveatable interest when a triggering event occurs, this was not the case here. A right of first refusal can be created over land without writing but there must be part performance. There was no part performance here.

It is possible for a trust to be established when there is a contribution to improvements and a reasonable expectation of an interest in the property. But there was no trust here because the contributions either benefited the lessee or were required under the lease, which provided for lessees to be compensated for their improvements. Further, CPT did not have legal ownership of the right of first refusal so it could not hold that right in trust.

 

After 14 years as general counsel for a local authority, Andrea Hilton is now a sole practitioner practising local government law.

Stills v McCormack [2023] NZHC 2224.

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