Be clear over lease renewals

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