An arrangement that looks like a lease will not always amount to one. Sometimes, it may be a mere bailment. This distinction may be significant for various reasons, including the issue of how much notice must be given to terminate the arrangement.

In Acernus Aero Limited v Vincent Aviation Limited [2013] NZHC 595, the parties agreed that, in consideration for a monthly fee, the defendant would store the plaintiff's aircraft in a hangar it leased, and add the aircraft to its Air Operators Certificate. After a dispute the defendant purported to terminate the arrangement summarily (although it had given a seven day notice of termination a month and half earlier).

The plaintiff sued the defendant on a number of grounds, most relevantly on the basis that it had not given reasonable notice of termination. It argued that the parties had entered into a sub-lease or licence. As, under section 245 of the Property Law Act 2007, the notice period implied into leases and licences is 10 clear working days where termination is due to non-payment, insufficient notice had been given.

The Court rejected the argument that the arrangement was a lease, as it had none of the essential elements of such a contract. In particular:

  • There was no certainty of premises. No precise area of the hangar could be assigned to the space that the aircraft occupied
  • The plaintiff did not have exclusive possession of any part of the hangar. The defendant was free to move the aircraft as it saw fit
  • There was no certainty of commencement date or term.

The Court also found that no licence was in place. Under a licence, the licensor assumes no obligation to the licensee for the care of an item that the licensee brings onto the land. By contrast, the plaintiff had asked that the aircraft be stored in the plaintiff's facility and care, which is what happened. The plaintiff took responsibility for the aircraft, and maintained insurance.

Against this background, the Court held that the arrangement was a mere bailment. As such, there was no statutory notice period necessary before termination. Rather, 'reasonable' notice was required and had been given.

The High Court's decision underlines that it is prudent to document commercial arrangements, particularly in relation to the use of land, in clear and certain written terms.