By Linny Folau

Tonga Water Ltd., a tenant leasing a factory from the Tonga Asset Managers & Associates Ltd. at the Small Industries Centre won a civil claim that it was entitled to have its rent renewed.

Justice Tupou granted the ruling on 22 October at the Supreme Court in Nuku’alofa.

This was a claim by Tonga Water Ltd (plaintiff) as tenant of a factory shed in Ma’ufanga, which was leased to the plaintiff by the defendant, Tonga Asset Managers & Associates Ltd, under a tenancy agreement dated 26 June 2013. The plaintiff claimed breaches of the tenancy agreement and sought judgment and other declarations in its favour.

At the time the Chairman of the Board of Directors of the defendant company was also the director for the plaintiff company

“Essentially this is a claim in contract and the matter at issue focused around the proper interpretation of the tenancy agreement and the conduct of the parties in relation to it,” stated Justice Tupou.

The judge stated there were arrangements about how this rent was to be paid and an important provision which said this: “The rent shall be reviewed by 10% in July 2013. It shall be reviewed again and every two years with such review tied to a national CPI afterwards.”

Moreover, there were conditions and provisions usually to be found in such agreements for the tenancy to be terminated: By either party upon breach of the other party or as otherwise mutually agreed between them, and shall inform the other party, by giving 30 days’ notice. And finally there was a provision in the tenancy agreement which stated as follows: “If the tenant shall be desired of continuing the tenancy hereby created for a further term of one year at the expiration of the term hereby created the tenant shall give the landlord at least one months’ notice in writing of such desire…”

Claim

“It was immediately clear that the change was not in terms of the original provision about the review of rent as it well exceeded the 10% specified earlier. But it was equally plain that the plaintiff acquiesced in that change of rental because for the next nearly 10 years that rental was paid by the plaintiff to the defendant.

“Also relevant that, at the time of what I will call the amended rent, which lifted the rate as I have already set out, the Chairman of the Board of Directors of the defendant company was also the director for the plaintiff company. It may therefore be that for that reason or for other reasons relating to the association between the two parties or for other good business reasons such as establishing goodwill, recognising efforts for improvement etc., the increased rent in excess of that stipulated in the tenancy agreement was acquiesced without protest and without comment for the following nearly 10 years, she added.

“That fact has an important legal consequence in my view. That the tenancy agreement continued to be observed and respected by both parties with the only variation being the rental change referred to. Otherwise, the agreement continued to be performed in its terms and no suggestion was made otherwise.

“There was no attempt to repudiate or renegotiate the tenancy agreement; there was nothing other than a continuation of that being the legal basis of the relationship between the parties. Accordingly, I find the actions of the parties as a result of that can only be construed in ordinary contract terms as agreeing to an amendment to the tenancy agreement which was accepted by both parties and continued to then be part of the existing agreement which was otherwise observed in all its aspect until the present dispute erupted.

“In so far as that amendment was concerned, the parties are both bound by their course of conduct and accordingly estopped from denying it,” the judge stated.

“Those principles apply here in terms of the increased rental which the plaintiff paid and the defendant accepted for the past 10 years or so. What happened next was that the plaintiff wrote to the defendant company seeking to extend the tenancy in the terms set out and which I have already mentioned and eventually the defendant company replied accepting the further period of one year but lifting the rental from the then T$1,200 per month to T$2,000 a month.”

Contested

The judge stated that this contest was then joined. On the one hand, the plaintiff asserted that the agreement continued in full force and effect apart from the agreed increase of rent already mentioned and that the renewal notice was a notice given pursuant to the original tenancy agreement.

“For its part the defendant company asserted that the tenancy agreement was at an end and that it was within its rights to agree to a further term of one year but untrammelled by the conditions and provisions of the earlier agreement including the agreement as to restriction of rental increase,” she stated.

“In my view, the position of the defendant cannot be sustained. It is clear that the agreement continued in full force and effect. Nothing was done to bring it to an end and the notice of the further period of one year was given, I find within the terms of the original agreement.

“It follows, that the rental is therefore limited to the calculation based on provisions of that agreement. I find that the agreement had not expired, that the right of renewal was exercised within the terms of the agreement and that the defendant was therefore bound by the calculations for rental increase set out in the original agreement.”

The judge stated that clearly judgment ought to be for the plaintiff as it sought a declaration that it was entitled to a right of renewal and she proposed to make that declaration accordingly.

Judgment was granted in favour of the plaintiff. It was declared that the plaintiff is entitled to a right of renewal and calculations of any rental increase shall comply with the rate set out under the original agreement.

“I am hoping that this determination will allow the parties to settle this matter in the light of whatever has taken place since the papers were originally filed. Costs are awarded in favour of the plaintiff to be taxed if not agreed," stated the judge.