RENT OR GOODWILL?

Timaru Herald, Volume CXXXVII, Issue 19451, 28 March 1933, Page 12

RENT OR GOODWILL?

APPEAL COURT SUIT. INTERPRETATION OF ACT SOUGHT. By Telegram’- -Press Association WELLINGTON. March 27. Points arising out of the National Expenditure Adjustment Act, 1932. occupied the attention of the Court of Appeal to-day. The appellant. Ernest Charles Heel, of Auckland, owner of the fee simple of the Railway Hotel at Inglewood, in 1925 leased it to Bridget O'Neill for four years at a yearly rental of £624; Mrs O’Neill, in addition, paying £3OOO down. On November 25th, 1929. appellant executed a further lease to Mrs O'Neill for a term of four years from February Ist, 1930, at a rental of £650 per annum, Mrs O'Neill again paying a further sum of £3OOO down, which was expressed in the lease to be paid for goodwill. On August 14th, 1931, Mrs O’Neill, having died, her executors transferred the lease to Leo Patrick O’Neill, the present respondent. In May, 1932, the National Expenditure Adjustment Act came into operation. Section 31 of the Act provided for a 20 per cent, reduction of all rents payable in respect of land or any interest in land. The question then arose whether respondent was entitled to any allowance under that Act in respect to the last £3OOO paid by Mrs O'Neill, he contending that the £3OOO should be considered as a premium paid for the lease, which under Section 29 of the Act was deemed to be rent accruing from day to day, and hence reducible in accordance with Section 31.

Appellant denied the allowance, and contended that the sum in question was paid as a purchase price for goodwill, not as a premium for the lease. Appropriate proceedings having been taken, Mr Justice MacGregor on August 25th, 1932, held that the payment had been by way of premium, consequently O'Neill was entitled to a 20 per cent, reduction of the proportionate part of the said sum calculated from April Ist, 1932, from which date the National Expenditure Act operated, to January 31st, 1934, the date of expiration of the lease. On the Bench are the Chief Justice (Sir M. Myers), and Justices Reed, Ostler and Smith.

Mr Weston, counsel for appellant, said the question was whether the sum paid by the hotel lessee for goodwill of an hotel business could be held to be rent paid in respect of land within the meaning of Section 31, or whether it was paid under a contract in force at the time of the passing of the Act. Appellant leased the premises to respondent, and independently had sold the right to use the goodwill for a period of four years. The parties by their agreement had separated the goodwill from the rental, and fixed a price for use of it. The National Expenditure Act could not convert into rent what was not in the nature of rent before its enactment. The Court adjourned till to-morrow.