Often a lease of land or land and buildings gives the tenant the right to renew it, sometimes more than once. This depends on what is written in the lease document. Usually the lease will state that the tenant has the right to renew the lease only if the tenant has complied with all the terms of the lease and the tenant has given the landlord written notice of the tenant's intention to renew the lease. Commonly the lease states that the tenant must give three months notice, but some farm leases require the tenant to give at least six months notice.
Can the Landlord Refuse to Renew the Lease?
What happens if the tenant has not complied with the lease, or has not given the landlord written notice in time? Reading the lease on its own, you would think that the landlord could refuse to renew the lease. In fact they can, for the reasons mentioned, but that may not be the end of the matter, because leases must be read subject to many provisions in the Property Law Act 2007, some of which protect the tenant.
That Act gives the tenant the right to apply to the High Court to require the landlord to renew the lease, if the landlord refuses to renew. The court has power to do this, taking into account the circumstances I talk about later. The landlord and tenant cannot override the provisions of the Act by agreeing that they do not apply.
If the landlord does not wish to grant the renewal of the lease, the landlord should serve a notice on the tenant (and certain other affected parties). The landlord's notice must state that:
- The landlord is refusing to grant the renewal of the lease.
- The tenant has the right to apply to the court for relief against the refusal.
- The tenant must make the application within 3 months of receiving the landlord’s notice.
- It is advisable for the tenant to seek legal advice.
The Tenant’s Application for Relief
If the tenant applies to the court for a renewal of the lease, the court has a wide discretion and can take into account such matters as:
- Why the notice was not given e.g. it may have been overlooked
- Whether the landlord contributed in any way to the tenant's failure to give notice
- The tenant's conduct, and whether the tenant has complied with the lease
- How the landlord and the tenant would be disadvantaged if the relief was or was not granted
- The landlord's and the tenant's motivations
- How any other parties might be affected.
An Example Where Relief was Refused
In one case[i] the court refused to grant the tenant’s application for relief for several reasons. They were:
- The tenant had used the land for farming of bulls, whereas the lease only permitted dairy farming and beef grazing
- The tenant had not done the fertilizer tests required
- The tenant had used some of the landlord's land not included in the lease (This had arisen because the parties had drafted the lease themselves and had not defined the leased land clearly – one reason to have a lawyer do the job!)
- The tenant had failed to maintain the pasture, farm, fences and culverts properly
- The tenant would not suffer any irreparable harm. It stood to lose less than $40,000 if the lease was not renewed.
- There would be significant prejudice to the landlord if the lease was renewed. The judge considered that, because of the hostility between the landlord and the tenant, it would be difficult for them to agree on the correct area of land to be included in the lease without resorting to arbitration. The judge considered that even an arbitrator would find it difficult to identify the correct land to be included in the lease.
[i] Sibrad Company Ltd v Kanters (2009) NZCPR 356
What Does this Mean for Landlords?
If you do not intend to grant a renewal because the tenant is not complying with the lease, or has not given you enough notice, you should give the tenant notice of this intention as required by the Act. You should also consider whether your desire not to renew the lease might be for trivial reasons that might be overturned by the Court if the tenant applies for relief.
What Does this Mean for the Tenants?
If you want to ensure that you can renew your lease, then you should be careful to comply with all the terms of the lease and give notice of your intention to renew to the landlord within the time stated in the lease. If you do not do this, you may lose your right to renew the lease and could be put to the expense, hassle and delay of court proceedings. However, you may be able to get relief from the court if needed.
Specialist Legal Advice can Save you Money and Hassle
The law affecting leases is complex and technical. Your best option is to seek advice from a lawyer with specialist experience before taking any action.
Please email me at [email protected] 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.