Be clear over lease re­newals

Kapi-Mana News - - CONVERSATIONS - ALAN KNOWSLEY LE­GAL MAT­TERS

WHAT HAP­PENS IF YOU DO NOT EX­ER­CISE A RIGHT OF RE­NEWAL?

Most com­mer­cial leases re­quire a land­lord to re­new a lease where the ten­ant pro­vides suf­fi­cient no­tice in writ­ing of their in­ten­tion to re­new. This is not an ex­ten­sion of the orig­i­nal lease, but a new lease ar­range­ment that the par­ties agree to en­ter into.

A com­mer­cial ten­ant of­ten has a right of re­newal in their lease af­ter their ini­tial term ex­pires. Some­times ten­ants do not for­mally ex­er­cise the right of re­newal pro­vided by their lease, but con­tinue to oc­cupy the prop­erty and pay rent to the land­lord. The ten­ant as­sumes that the ar­range­ment had be­come a month-by-month lease, mean­ing that they could ter­mi­nate the lease by giv­ing a 20 days’ writ­ten no­tice at any time.

RE­NEWAL BY IM­PLI­CA­TION

Many ten­ants will not give for­mal no­tice in ac­cor­dance with the re­quire­ments of the lease, for ex­am­ple be­cause they for­get to do so, but in some in­stances, given the con­duct of the par­ties, the lease may be re­newed by im­pli­ca­tion.

If the land­lord con­tin­ues to al­low the ten­ant’s oc­cu­pa­tion and ac­cepts the paid rent, then it will likely be deemed that the lease has been re­newed by im­pli­ca­tion. The lease can then only be ter­mi­nated in ac­cor­dance with its terms.

STATU­TORY TEN­ANCY

Where a lease has not been re­newed by im­pli­ca­tion but the ten­ant con­tin­ues to oc­cupy the premises with the land­lord’s con­sent, even though a lease has ex­pired and they have not agreed on a new lease pe­riod, it will be­come a statu­tory ten­ancy, also known as a pe­ri­odic/month-by­month ten­ancy. A statu­tory ten­ancy can be ter­mi­nated by ei­ther party at any time by giv­ing the other party at least 20 days’ writ­ten no­tice.

WHICH IS PREFER­ABLE?

It can be hard to prove that re­newal of a lease has oc­curred by im­pli­ca­tion.

If you are a ten­ant wish­ing to re­new a lease, re­ly­ing on re­newal by im­pli­ca­tion is not the best op­tion. Should the land­lord re­ceive a bet­ter of­fer or de­cide that they would like the prop­erty un­oc­cu­pied for what­ever rea­son, it may be eas­ier for them to ar­gue there has been no for­mal re­newal and there­fore ter­mi­nate the lease.

If you are a land­lord, the un­cer­tainty that comes from hav­ing a pe­ri­odic/month-by­month ten­ancy is likely to be unattrac­tive in terms of cash flow

‘‘It can be hard to prove that re­newal of a lease has oc­curred by im­pli­ca­tion.’’

and fu­ture plan­ning.

To be cer­tain that a lease will be re­newed, ten­ants should en­sure that they give ad­e­quate no­tice in ac­cor­dance with the re­quire­ments of their lease.

If, due to the con­duct of the par­ties, the lease had been re­newed by im­pli­ca­tion, the ten­ant re­mains bound by its terms. The ten­ant can­not sim­ply pro­vide 20 days’ writ­ten no­tice to can­cel the lease, but has to work with the land­lord to agree the terms of any early ter­mi­na­tion.

If you are want­ing to re­new a lease, or are con­cerned about the type of ten­ancy ar­range­ment you might be sub­ject to, see your lawyer for advice.

Col­umn courtesy of RAINEY COLLINS LAWYERS phone 0800 733 484 www.rain­ey­collins.co.nz. If you have a le­gal in­quiry you would like dis­cussed in this col­umn please email Alan on aknowsley@rain­ey­collins.co.nz

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