This recent High Court case provides guidance for tenants and landlords of commercial properties on some of the ‘rights’ and ‘wrongs’ of undertaking the lease cancellation process under the Property Law Act 2007 (PLA).

These insights come from the Court’s decision in Ria PVT Ltd v Boatshed 15 Ltd [2025] NZHC 2091 in which the Court considered an application for urgent interim injunction for relief against cancellation of a lease and prevention of the property being re-let to a third party.

Background

The parties, RIA PVT Ltd (Tenant) and Boatshed 15 Ltd (Landlord) entered a six-year lease for a premises in West Auckland (Premises) in December 2024 (Lease). Prior to commencement of the Lease on 1 March 2025, the Tenant was required to undertake significant fit-out and renovation works of approximately $80,000.

On 6 June 2025, roughly three months since the commencement of the Lease, the Landlord issued a notice of intention to cancel under section 245 of the PLA. This was served by email (which raises the question of whether or not service of the notice was valid).^[1] The PLA notice alleged unpaid rent and operating expenses, and other breaches, and requiring payment of $14,373.96 by 23 June 2025.^[2]

A month later, on 7 July 2025, the Landlord sent an email to the Tenant notifying that the Lease was being terminated. The same day, the Tenant was locked out of the Premises. This cancellation meant that the Tenant had leased the Premises from 1 March 2025 to 7 July 2025, a period of just over four months.

Relevant to the Court’s decisions, was that three days prior to the cancellation, the Landlord had entered into a signed agreement to lease the Premises to a third-party. That new lease was conditional on the termination of the prior Lease. 

High Court’s decision

This decision provides an overview of the lease cancellation process. We discuss our three key take aways in more detail below. 

1. Relief where rent has, or can with certainty, be paid
   
   The Court highlighted the traditional distinction drawn between relief when the breach concerns non-payment of rent as opposed to other covenants. Where the breach consists solely of a failure to pay rent, there is a presumptive right to relief on payment of the arrears and costs. Only in exceptional circumstances, such as insolvency, will relief be denied. 
   
   The Court highlighted the traditional distinction drawn between relief when the breach concerns non-payment of rent as opposed to other covenants. Where the breach consists solely of a failure to pay rent, there is a presumptive right to relief on payment of the arrears and costs. Only in exceptional circumstances, such as insolvency, will relief be denied.^[3]
   
   On the current facts, the Landlord had referred to comments made by the Tenant that “trading has been a challenge in this economic climate”. The Court found this to be a far cry from establishing the Tenant’s insolvency and insufficient to outweigh the presumptive right of relief. Rather, the Tenant had advised of multiple assets owned that could be used to clear this debt (such as an additional business, money in a safe, and the fit-out assets) and had offered to pay the sum set out in the Landlord’s notice in its solicitor’s trust account. These point towards the Tenant’s ability to pay the arrears. In this case, there was also a dispute about an oral agreement for rent relief due problems with the Premises.
   
   Where a tenant has restored the landlord to their entitled position under the lease (eg by paying the rent arrears), the Court will be more inclined to give relief to ensure the tenant does not lose the tenant’s benefit under the lease. In this case, the Tenant had continually sought to resolve matters outside the court proceedings. These were all matters looked favourably upon by the Court for an interim injunction.
   
   
2. The “twilight” period following cancellation
   
   Both tenants and landlords should be aware of what the Court describes as the “twilight period”. Under the PLA, a tenant may seek relief within three months after the date on which the landlord cancelled the lease. It is during this period that a landlord must be careful in taking any next steps, especially in the context of cancellation for non-payment of rent, where payment of the arrears carries a presumptive right of relief.
   
   This creates a potential risk for landlords when engaging in negotiations for a new third-party lease if landlords do not adequately protect themselves when entering into a new lease during the twilight period. We recommend landlords ensure that the new tenant is aware of the existing tenancy with the prior tenant and make the new lease conditional on the prior lease being cancelled.
   
   If a new lease is not conditional on the cancellation, there is a risk that the landlord may have entered into a contract that the landlord cannot comply with. If the Court rules in favour of the prior tenant, then the landlord could be liable to the prospective tenant for breach of lease if that lease is not conditional on the prior lease being cancelled.
   
   
3. Balance of convenience and overall justice
   
   In determining whether to grant an interim injunction (prior to a full Court hearing on the merits of the case), Courts will also consider the balance of convenience and overall justice. Some of the factors relevant to the Court in this case, apart from the ability to pay the rent, included that:

1. 1. Tenant’s substantial investments: the Tenant had invested in renovations and fit-outs that far exceeded the disputed arrears. Given the short period of the lease to that date (only four months of the six-year term), the Tenant’s investments into the property were clearly disproportionate to the term of occupation it had enjoyed.
      
      
   2. Tenant adversely affected: while cancellation of a lease will always adversely affect a tenant, the Tenant here was at risk of losing its ‘gaming licences’ if it was locked out of the Premises. Furthermore, the abrupt nature of the lockout had had implications for business interruption and its trading reputation.
      
      
   3. Tenant company has reliant employees: the Tenant had employees who were from overseas but could no longer be employed if it was unable to trade. The cancellation would adversely impact those individuals if relief was not granted.

Ultimately, the Court found that all of these factors worked in favour of granting an interim injunction against cancellation, particularly when the Court had also found that there are serious issues to be tried in a full hearing, such as the validity of the notice served by the Landlord by email and whether or not the arrears recorded in the Landlord’s notice was correct in the light of a dispute over whether or not rent abatement was granted by the Landlord. 

Our thoughts

This decision highlights that the statutory procedures under the PLA for cancelling a lease can be complex with potential risks to landlords who do not navigate them carefully. 

It is therefore important that landlords seek legal advice before taking steps to cancel a lease and that tenants seek legal advice on the rights and remedies available in the event of cancellation. 

Special thanks to Tawhiwhi Watson and Tom Hammond for their assistance in preparing this article.