Landlord wins the right to be paid first while disputes wait their turn
The High Court of New Zealand upheld a lease's “no set-off” clause, refusing to set aside statutory demands against a motel tenant.
In Kuber Trading Ltd v Ross [2026] NZHC 1852, the High Court of New Zealand at Auckland declined applications by Kuber Trading Ltd (KTL) and its guarantor, Ahuja Trustee Company Ltd (ATCL), to set aside two statutory demands, each for $36,725.80, over unpaid rent on a Paihia motel. A statutory demand is a formal insolvency-law step that can expose a company to liquidation if the debt goes unpaid.
The court said that the central question was whether a “no set-off” clause in the lease stopped KTL from raising a set-off or counterclaim against the landlord's claim for rent arrears. It held that the clause did.
Under s. 290(4) of the Companies Act 1993 (the Act), a court may set aside a statutory demand where there is a substantial dispute about the debt, an arguable counterclaim, or other grounds. KTL, which took the lease by assignment in November 2018, accepted that it was in arrears.
KTL raised three disputes to resist the claim: that the landlord had failed to maintain and repair the premises, had unlawfully re-entered them, and had refused to consent to an assignment that would have allowed a sale of the motel business.
The court rejected each ground. It found that clause 6 of the lease placed the maintenance and repair obligation on KTL, not the landlord, and that KTL had produced no evidence of loss from the alleged re-entry. On the failed sale, the court found that clause 6(f)(iv) entitled the landlord to withhold consent to an assignment while the tenant remained in breach of its rental and repair obligations.
Turning to the “no set-off” clause, the court said that such provisions required a tenant to "pay now, argue later," assuring landlords of continued cash flow while any dispute was resolved separately. It applied an earlier Court of Appeal ruling that a clause requiring rent to be paid without deduction barred a tenant from relying on a counterclaim to resist a statutory demand and held that the clause here barred KTL's cross-claims.
KTL argued that s. 290(4) of the Act overrode the contractual clause, and its case fell within an exception recognised where a landlord's conduct was egregious. The court rejected that argument, finding that the landlord had valid grounds to cancel, had re-entered lawfully, and had not engaged in conduct that would displace the clause.
The court held that ATCL, as guarantor, stood in no better position, because a guarantor could not rely on claims that the tenant itself was barred from pursuing.
The court declined to set aside the demands. It ordered KTL and ATCL, under s. 291(1)(a) of the Act, to pay the debts within 15 working days, and said that in default the landlord could apply to place the companies into liquidation. The court found that the landlord, having succeeded on both applications, was entitled to one set of costs, to be determined on the papers.
