The Court of Appeal's recent decision in DM Roberts Ltd v Mudgway [2013] NZCA 187 reminds landlords of the very limited scope for imposing conditions on consent to an assignment of a lease and the care that should be taken in prescribing permitted uses in a lease.

In this case, Roberts had leased a piece of land to Tauranga Boys College for 999 years on a peppercorn rental. The permitted use of the land was initially heavily restricted to outdoor education and school camps. Over the course of several decades the lease was eventually assigned to Mudgway and the permitted use was enlarged (by agreement) to allow the operation of a lodge pursuant to the conditions of a resource consent granted for that purpose (with a consequential increase in rental). Under the terms of the resource consent staff of the lodge were permitted to reside on the land with their families.

In 2011 Mudgway sought to sell the lodge business and assign the lease to a purchaser at which point Roberts apparently became concerned that the property was being marketed as a lifestyle block, a use quite different from the purposes of the original lease. When Mudgway sought Roberts' consent to the assignment of the lease, Robert's solicitor stipulated that such consent would not be forthcoming unless the assignee acknowledged that it would not be using the property for "residential accommodation". Subsequently, Robert's refined this to restrict residential accommodation to that which is subsidiary to the lodge and for a maximum of two persons plus family members. Mudgway sought declarations that these stipulations were unreasonable (among other things).

The Court acknowledged that the resource consent for the lodge only permitted accommodation that was subsidiary to the lodge, but found that the conditions Roberts' sought to impose on its consent amounted to increased restrictions on the lessee. The Court noted that the resource consent could be amended to permit different forms of accommodation. Accordingly, Roberts had no right to impose the conditions.

Both the High Court and the Court of Appeal observed that the lease had to be read in light of the terms of the resource consent for the lodge. This suggests that the reference to that consent in the description of the tourist lodge, being one of the very few activities permitted under the terms of the lease, effectively extends that use to the activities described in that consent. While the conditions Mr Roberts' placed on his consent may have required some refinement, we have some sympathy for his apparent intention to clarify the extent of the accommodation activities that he thought were permitted. We also find it somewhat surprising that the requirement in the lease that the lessee complies with the conditions of a resource consent could effectively increase the scope of a permitted use to any activities permitted by that consent.

The case is a reminder of the importance of clarity and precision in drafting permitted use provisions and the Courts' lack of tolerance of landlords seeking to increase the burden of a lease as a condition to its assignment.