Le-ata Fashion Boutique evicted [1]
Wednesday, January 20, 2021 - 19:29
Le-ata Fashion Boutique & Gift Shop has been ordered by the Supreme Court to vacate the property it rented on Taufa’ahau Road, Nuku'alofa CBD, as a result of a civil claim brought by the plaintiff, Cocker Enterprises Ltd, the sub-lessee.
Lord Chief Justice M.H. Whitten QC in a judgment earlier this month said that Cocker Enterprises Ltd. is the sub-lessee of this allotment and buildings on Taufa'ahau Road, situated between EM Jones Ltd. and Sioeli Tuita's property, in the Central Business District. The property was formerly held by Lord Lasike. He said, the plaintiff acquired the sub-lease from the ANZ Bank by mortgagee sale following default by Lord Lasike in his loan obligations to the bank.
The defendant, Junior Leata McCarthy (trading as Le-ata Fashion Boutique & Gift Shop) rented the shop on the property in an rental agreement with Lord Lasike.
Cocker Enterprises demanded that the defendant vacate the property so that it could demolish the existing buildings and redevelop the site into a shopping mall, which was the purpose of its acquisition of the sub-lease.
The defendant had refused to vacate the property and said she was entitled to occupy her shop for the balance of her rental agreement with Lord Lasike. The plaintiff then sought an order for eviction and damages.
Mortgage
The Lord Chief Justice said this case raised the novel issues in Tonga, as to the proper characterisation of rights conferred by a tenancy agreement, the rights and obligations of a mortgagee in possession of the demised tenancy and any subsequent 'purchaser' (a sub-lessee) and the doctrine of notice.
On October 5, 2004 Lord Lasike borrowed $170,000 from the ANZ Bank. He said by way of security for the loan, Lord Lasike executed a mortgage over the land (land mortgage) and a chattel mortgage (chattel mortgage) for his interest in the allotment and buildings in favour of the bank. The land mortgage was registered on October 6, 2005.
Lord Lasike went on to establish on the property what became known as the 'Sandyboyz Motel'. It was not financially successful. He therefore decided to rent out rooms within the buildings to be used by tenants for shops. On March 1, 2014, Lord Lasike, as landlord entered into a rental agreement with the defendant, as tenant for room No. 4 within the reception area of the former motel ("rental agreement). The rental agreement had included the term was 15-years and the rental was TOP$1,000 per month, T he defendant agreed to renovate and upgrade the premises at her own expenses.
However, Lord Lasike neither sought nor obtained the bank's consent prior to entering into the rental agreement.
In his brief of evidence, Lord Lasike stated that he did not tell the bank about the rental agreement because he considered that it "did not prejudice the interests of the bank" and that the rental payments from the tenancies would help the bank. This was his first mortgage and he did not obtain any legal advice before executing the documents. He also said he did not read them before he signed them.
The defendant established her shop in the rented space. She gave evidence that she spent $68,320 in renovations and maintenance. The defendant also said that at the time of entering into the rental agreement with Lord Lasike, he did not tell her that he had mortgaged the property to the bank.
Failure to pay loan
The court heard in 2016, Lord Lasike defaulted on the loan.
Litigation followed which concluded in favour of the bank. By then, Lord Lasike's outstanding debt to the bank had grown to TOP$1,159,391. The bank foreclosed pursuant to its rights under the mortgages.
On September 12, 2016 Lord Lasike signed a notice to all tenants of the premises directing them, until further notice, to pay their rent to the bank.
The defendant paid her monthly rent (as per the Lasike rental agreement) to the bank.
She also gave evidence that because the only alteration to her rental agreement with Lord Lasike was that she was then required to pay the rent to the bank, she had the impression that her rental agreement with Lord Lasike, was alright.
However, on August 18, 2017 the bank sold the property under a mortgagee sale to the plaintiff for $750,000 and was issued a Deed of Agreement of Sub lease of Land.
Void
The Lord Chief Justice ruled that the defendant's rental agreement was enforceable against Lord Lasike and was void as against the bank and the Plaintiff.
He said, the bank granted the defendant a new tenancy or licence on a periodic basis or at will (which, if it was not void by operation of law, had the effect of destroying the old rental agreement) which permitted her to continue occupation of the shop in return for rent of $1,000 per month.
Therefore, the only right the defendant had, was her right to occupy the shop on what was effectively a monthly tenancy or licence with the bank.
As the plaintiff's rights under the sublease were derived directly from and could therefore be no better or worse than, the bank's rights under its mortgagee lease, the plaintiff took the property subject only to the defendant's monthly tenancy with the bank.
He said, the plaintiff gave more than reasonable notice to the defendant of its termination of her tenancy of the shop and the demand for her to vacate it.
"The defendant's refusal to vacate the property was unlawful. Therefore, since 16 February 2020, the Defendant has been a trespasser on the property."
The Lord Chief Justice then ruled, in favour of the plaintiff's claim and the dismissed the defendant's counterclaim.
It must vacate the property and remove her belongings from it within 28-days of this date [January 6] and pay the plaintiff damages in the sum of $11,000 and costs of the proceedings.
"Any umbrage the defendant may understandly feel at this judgment ought to be viewed, in truth, as the result of Lord Lasike's default in his obligations under a mortgage of which he never told the Defendant. By that default, Lord Lasike lost his rights of possession and occupation and triggered the bank's rights as mortgagee in possession."
The Lord Chief Justice said in doing so, Lord Lasike arguably breached his implied warranty of title and obligation not to derogate from his grant.