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Lease renewals - traps for the unwary

18 December 2017

It’s a credit to Kiwi farmers’ practical and easy-going approach that few farm leases end up requiring a lawyer’s assistance because things turn sour. However, that’s not to say that doesn’t happen. When relationships do turn sour it is not uncommon for the farmer’s understanding of his or her rights to differ from the legal position. Whether or not a lease has been renewed is an example of a situation where the legal position might turn out to be different from what the lease document itself appears to state. This is because the law relating to leases, in respect of some matters, overrides any agreement the landlord and tenant might make between themselves.

The tenant’s right to apply for relief against cancellation

Where a lease includes a right of renewal, it will usually provide that the tenant must give a certain period of notice of intention to renew the lease. It will also usually provide that the landlord must renew the lease if the tenant has complied with certain conditions – for example, the tenant has not breached any of the terms of the lease.

Reading the lease document itself you might think that the landlord doesn’t have to renew the lease if the tenant has not given the required amount of notice or the tenant has not complied with the lease in some way. However, this is not necessarily the case. If the landlord refuses to renew a lease the tenant can apply to the Court for “relief against forfeiture” under the Property Law Act 2007.  This means the court can exercise its discretion and order the renewal to take place. A court is likely to grant relief if the tenant has merely overlooked giving the notice of renewal or the tenant’s breach of lease is relatively trivial. The right of the tenant to apply for relief under the Property Law Act overrides any provision in the lease that conflicts with this right.

Lease can be renewed by implication

Leases commonly provide that the tenant will be a monthly tenant if he or she remains in occupation at the end of the term. In this situation the lease continues on the same terms (for example, the obligations to pay rent and maintain the premises) except that either landlord or the tenant can give the other one month’s notice to end the lease. Despite this provision in the lease, and particularly in the situation where the lease document includes a right of renewal, it is possible that the landlord’s and the tenant’s conduct means a court would find a right of renewal has been exercised - for example, the landlord and tenant may have verbally agreed to the renewal, or it may be implied from their emails or letters, or by payment of a new rent amount. The landlord and the tenant would then be committed to the renewal even though there had been no formal notice of renewal or no document signed to evidence the renewal. It is therefore important that landlords and tenants take legal advice before they take any action in relation to a lease.

Legal advice advisable

The law around leases is complex and leases have been the subject of many court cases. Being sure your legal position is clear when entering or renewing leases requires specialist advice.  If you are going to enter into discussions or correspondence about your lease, it is advisable to make it very clear you will not be bound until you have taken legal advice and signed a professionally prepared document.

 

Please email me at barbara.mcdermott@nwm.co.nz with your ideas for future articles. Keep an eye out for next month's column, where I will discuss another relevant rural legal issue.


Barbara McDermott is a partner of Norris Ward McKinnon, specialising in commercial and rural law. With offices in Hamilton and Huntly, we have friendly, expert legal advisors ready to help you with your business and personal legal matters.

 

Barbara McDermott