Business wins subletting case in High Court
AFTER subletting a premises it was not allowed to, a Dunedin business has won a case to keep its lease — and continue subletting it — despite attempts by its landlord to cancel the agreement.
Taste of Asia leased premises from Hillcrest Properties Ltd at the Mailer St shopping centre in Mornington in April 2011.
But, after Taste of Asia’s director Delvin Chin then subleased the property to a company called Lim 88 (the operators of Cantonese restaurant Sichuan 88 and Wok Fusion), Hillcrest sought to have the lease cancelled in the High Court at Dunedin.
Mr Chin then countered that by asking the court for ‘‘relief against cancellation’’ of the lease.
The lease began in October 2011 at a price of $30,000 (plus GST) per year for five years. Taste of Asia then had two rights of renewal periods, each lasting five years.
The agreement had a clause which stated Taste of Asia could not ‘‘sublet or otherwise part with the possession of the premises’’ without getting written consent from Hillcrest and its director, Gordon McLauchlan.
After obtaining the lease, Mr Chin’s Taste of Asia business opened a takeaway store there called Wok Fusion and then set about developing the site next to it to become the restaurant, Sichuan 88.
Mr Chin estimated the cost to fit the premises out to host was about $600,000.
After this was done he approached Hoy Kong and Cuiha Lim — whom he knew from work in a previous company — to ask them to come and operate Wok Fusion and Sichuan 88. They agreed to do so under the business name Lim 88 and in 2013 entered a sublease agreement with Mr Chin costing $3000 a week to rent the building as well as $156,000 a year to rent the business.
In 2015, Taste of Asia and Lim 88 renewed terms, which added that the rent would be reviewed every two years and increased each time by 10%.
The new agreement — of which again there is no evidence the building owner, Hillcrest, was notified — also had a clause forbidding Lim 88 to contact the ‘‘head landlord’’, Hillcrest.
In 2016, Hillcrest signed an extension to let Taste of Asia continue leasing the site, but Hillcrest director Mr McLauchlan said he was at that time not aware of the sublease agreement between Lim 88 and Mr Chin’s business.
Not long after the rent for Lim 88 was increased to $188,760 per year in January 2019, Ms Lim ran into Mr McLauchlan at the Mailer St property and told him about the agreement.
‘‘She was very distressed and explained that she could not keep up the payments to the respondent,’’ Mr McLauchlan said.
‘‘I asked her about this and she explained that she was subletting the premises. I was extremely shocked.’’
It was then Mr McLauchlan sought to have the lease cancelled and rejected a ‘‘retrospective’’ request from Taste of Asia for consent to the sublease.
Justice Graham Lang said despite Mr Chin claiming otherwise, he ‘‘decided to conceal the existence of . . . subleases from Hillcrest’’.
However, because the breach had caused no financial or reputational damage to Hillcrest — Taste of Asia had met all of its obligations and Lim 88 had been a ‘‘model subtenant’’ — Justice Lang found it would be ‘‘disproportionate’’ for Taste of Asia to lose its lease because it breached its terms. He ruled in favour of Mr Chin’s business keeping the lease and dismissed Hillcrest’s application to take back possession of the premises.
He said Taste of Asia would lose profit from funds and efforts it had so far devoted to the two businesses.
Hillcrest’s lawyer, Adriana Pinnock, suggested Taste of Asia could remove what it had invested into the site and establish elsewhere, but Justice Lang found it was ‘‘not difficult to see why Mr Chin was unenthusiastic about that suggestion’’.
‘‘Effectively, it would require Taste of Asia to reestablish its businesses again from scratch.’’
Justice Lang did add as a condition of his decision that Taste of Asia must now formally ask for Hillcrest’s consent for the sublease with Lim 88.
That would be left to the two parties to agree on but if they could not, he said they would be able to put their arguments on the conditions the court should add to its decision.