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This post gives an overview of some common issues arising following the Christchurch earthquake in respect of leases that use a recent version of the ADLS Deed of Lease form.
When can the Lease be terminated?
- The premises are “untenantable” following damage or destruction.
Whether premises are untenantable is fact specific. The case law indicates that to be untenantable, the premises must be unfit for occupation and use by the tenant. The test is whether the premises have become unfit for the occupation and use of someone assumed to want the premises for the same use as the tenant. In other words, has the tenant’s ability to enjoy, use and operate the premises been substantially interfered with?
Significantly, if damage is only temporary or transitory, it is unlikely to render premises untenantable. In other words, it appears there must be a degree of permanence about the damage for untenantability to be found.
Key factors include the nature and extent of the damage (expert evidence such as engineering/building reports may be required) the length of time that the premises will be unavailable for use by the tenant (again expert evidence may be required on the type of repairs required and the length of time this will take), and the term of the lease remaining. If the premises are just temporarily unusable then this is unlikely to suffice.
- The Landlord (not the tenant) may also terminate the lease even if the premises are not untenantable if, in his/her reasonable opinion, the premises are so damaged or destroyed as to require demolition or reconstruction. This will require consideration of the nature and extent of the damage, likely remedies and cost. Again expert evidence would be prudent.
Partial Destruction: In the case of other damage, the lease will terminate if the landlord cannot obtain the necessary permits/consents, or the insurance monies are insufficient, to repair the premises.
What are the Landlord’s Repair Obligations?
Must the Tenant Keep Paying Rent?
- On termination:
- If the premises are untenantable because of destruction of or damage to the property, the Lease terminates automatically such that no rent is payable from the date of the damage to the property.
- If the landlord elects to terminate the lease because it is not practicable to repair the premises a fair proportion of rent and outgoings cease to be payable from the date of damage. Valuation evidence may be required to determine what is a “fair proportion” taking into account such things as the area of the property which has been damaged, the degree to which it has been damaged, and the significance of the affected area to the tenant’s business.
- On repair: If the landlord is able to repair the premises, the tenant is entitled to have the rent reduced by a fair proportion from the date of the original damage until the repairs are completed. Valuation evidence may again be required to determine what is a “fair proportion”.
- Cordoned off premises: If a tenant cannot access his/her building because of the police cordon or because a neighbouring building is unsafe, the ADLS lease provides no express remedy for the Tenant. The doctrine of quiet enjoyment is unlikely to apply as such disruption has not been caused by the landlord’s actions (unless a neighbouring property is owned by the landlord in which case the doctrine might apply although that will be fact specific). The doctrine of frustration is also unlikely to apply unless the tenant cannot have access to his/her premises for the whole or a substantial proportion of the remaining term.
