Ten­ants need to know leases


The re­cent se­quence of earth­quakes in Welling­ton has seen a num­ber of ten­ants try­ing to get out of their com­mer­cial leases.

In some cases, this may be be­cause the ten­ant has gen­uine con­cerns about the build­ing or their staff are un­will­ing to re­turn to a po­ten­tially risky build­ing.

Com­mer­cial te­nan­cies gen­er­ally have a fixed term, which means that you will need to reach an agree­ment with the land­lord to end the lease be­fore the term ex­pires.

If you sim­ply walk out, the land­lord has an obli­ga­tion to try and re-let the premises as soon as pos­si­ble but may find this dif­fi­cult to do if there is a pos­si­bil­ity that the build­ing has been dam­aged or is per­ceived as an earthquake risk.

As a re­sult, you could end up be­ing li­able for the rent un­til the term of your lease ex­pires.

Even if the land­lord can re-let the premises, if the mar­ket rent is lower, you could find your­self hav­ing to pay the dif­fer­ence for the bal­ance of your lease term.

Even if you are able to as­sign your lease, you could still be li­able for the new ten­ant’s obli­ga­tions if that ten­ant de­faults. You could also end up li­able for any short­fall in rent. You should there­fore give care­ful con­sid­er­a­tion to choos­ing any such new ten­ant.

Gen­er­ally, you can­not can­cel a lease be­cause there has been an earthquake or other nat­u­ral dis­as­ter.

The stan­dard that needs to be reached be­fore can­cel­la­tion rights can be ex­er­cised is that the premises are un­tenantable. This is a very high stan­dard to reach.

Be­cause of this, the most com­mon sce­nario for ten­ants is en­ter­ing into ne­go­ti­a­tions with the land­lord to ter­mi­nate the lease early.

You may be able to ne­go­ti­ate a fixed sum pay­ment to the land­lord to buy out the re­main­der of your term. In ne­go­ti­at­ing this sum, you should care­fully weigh up the costs you may be li­able for un­der the re­main­ing term of your lease.

In any event, be­fore you de­cide to leave you should also care­fully check your lease to see what your obli­ga­tions are to re­in­state the premises.

Most stan­dard leases will re­quire that you re­in­state the premises to the con­di­tion it was in when you first took on the lease, which could be a sub­stan­tial cost if you made sig­nif­i­cant mod­i­fi­ca­tions to the premises.

Check if your lease has a no ac­cess pe­riod clause.

Af­ter the Christchurch earth­quakes, no ac­cess pe­ri­ods were in­serted into the stan­dard form lease. This records that if a ten­ant is un­able to gain ac­cess to the premises for a cer­tain pe­riod ei­ther party can ter­mi­nate the lease. There­fore, if your premises were in a cor­doned off’ zone but un­dam­aged, you could still can­cel the lease af­ter a cer­tain pe­riod.

If your lease is an old form of lease with­out this clause, you may want to think about ne­go­ti­at­ing such a clause with the land­lord.

Make sure you and your land­lord have ap­pro­pri­ate in­surance cover.

You should check your lease to see what in­surance cover you and your land­lord are obliged to pro­vide and make sure there are no gaps. This should in­clude busi­ness con­ti­nu­ity cover in the event that you are un­able to con­tinue to op­er­ate at the premises for a pe­riod.

If you do have gen­uine con­cerns about the safety of the build­ing, make sure you raise them with the land­lord.

Un­der the stan­dard lease, the land­lord has obli­ga­tions to use any in­surance money with all rea­son­able speed to make the nec­es­sary re­pairs to a dam­aged build­ing.

Col­umn cour­tesy of RAINEY COLLINS LAWYERS­phone 0800 733 484 www.rain­ey­collins.co.nz

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