Lessees Claim To Reversionary Interests In Leases Fails

Whangarei District Council has succeeded in avoiding an interim injunction sought by lessees to restrain it from marketing or selling the reversions of leased land in Whangarei.

When it comes to commercial matters it sometimes seems local authorities are expected to extend a greater degree of consideration to the interests of other parties than would be the case with any other commercial operator.  But in fact the commercial operations of local authorities are managed for the benefit of their constituents, and no one should expect anything other than strictly commercial terms to apply to their business relationships.

Whangarei Leasehold Owners Association Inc v Whangarei District Council is an illustration of this expectation meeting the clinical application of the relevant law.

The facts

The lessees of land owned by the Whangarei District Council took the view, despite there being no such provision in the leases, that the Council ought to sell the reversionary interests in those leases to them rather than to any other purchaser.  The Council had in fact offered the reversions to the lessees in the first instance, but at a price determined by a valuation that those parties considered unacceptable.

When the Council subsequently put the reversions to tender, the lessees sought an interim injunction to restrain it from marketing or selling until it had first offered them to the lessees at current market value.

Causes of action

Three causes of action were pleaded in support of the application for an injunction:

• Breach of contract
• Equitable estoppel
• Negligence.

Decision

In respect of breach of contract it was alleged that the Council had entered into a 'process contract' by advising the lessees by letter that if it resolved to sell, it intended "to offer [the reversion] to the current lessee in the first instance".  The Council had also stated in a subsequent letter that the sales process would be "driven by independent valuations of a fair price to the ratepayers and the lessees ...".

The Court was not satisfied that there was a serious issue to be tried on the first cause of action.  It did not consider those statements to be in any way binding on the Council and found, in any case, it was not clear that the Council had failed to do what it said it would do. 

In relation to estoppel, the Court was not satisfied there had been any detrimental reliance on the statements made by the Council sufficient to ground such a cause of action.  Similarly it found insufficient evidence that the statements or conduct of the Council would be likely to give rise to a legitimate expectation on the part of the lessees.

On the third cause of action in negligence, the lessees claimed that the Council owed them a duty of care, to treat them fairly and in good faith and conduct the process of offering the reversions for sale in an open and transparent manner.  In response the Court said:

"Such a duty, between parties who are negotiating a commercial transaction, would be novel, even allowing for the duties imposed on the defendant as a local authority."

Further the balance of convenience was found to lie in allowing the tender process to run its course. 

Our primary Local Government contacts are:

PDF version

Our Local Government Services

Last updated: 8 February 2012

The contents of this publication are general in nature and are not intended to serve as a substitute for legal advice on a specific matter. In the absence of such advice no responsibility is accepted by Brookfields for reliance on any of the information provided in this publication.