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Re-entry by a landlord is not necessarily the end of a lease
A case decided towards the end of 2011 has highlighted the fact that the exercise of a peaceable right of re-entry by a landlord does not necessarily mean the end of a Lease. This is something which a lot of landlords will not be aware of, and something they certainly need to take into account, especially where they are intending to immediately re-let the premises.
The case involved various elements but essentially centred around an incomplete renewal of lease process, an incorrect cancellation of the lease, and an action by the tenant for relief against cancellation and relief against the landlord’s refusal to renew the lease. Following discussions around a proposed renewal of lease, the landlord wrote to the tenant recording that a renewal had been requested, and advising that documentation would follow shortly. A new lease was prepared but was incorrect. The new lease was never signed and the tenant remained in occupation until after expiry of the then current term.
The tenant fell into arrears of rent and the landlord served the requisite notice under Section 245 of the Property Law Act 2007 (the “Act”), purporting to cancel the lease and exercise a right of re-entry. The tenant managed to pay the arrears of rent to the landlord’s solicitor just before the notice period expired, but the landlord’s solicitor did not realise the payment had been received until after the landlord had peaceably re-entered the property.
Prior to the tenant raising its action, the landlord offered to allow the tenant to resume its lease on the condition that the tenant accepted the premises in their then current state – i.e. without fittings. The tenant refused.
The tenant made an application under Section 253 of the Act against the cancellation, and under Section 264 of the Act against the landlord’s refusal to renew the lease. The tenant also asked the Court to use its discretion under Section 256(1) of the Act to make it a condition of the requested order of relief that the landlord reinstate the premises to their fitted-out condition. The tenant was successful on all three counts.
The aspect of the case that we want to draw your particular attention to is the fact that Section 253 of the Act allows tenants (and mortgagees and receivers) to apply for relief against cancellation of a lease by a landlord on the grounds of a breach of covenant or condition of a lease, up to three months after the date the landlord peaceably re-entered the property.
As mentioned above, the landlord’s purported cancellation in this particular case was actually void (because the arrears of rent had been paid off prior to expiry of the relevant notice period) but, for the purposes of the Act, it would not necessarily have made any difference if the cancellation had been valid/correct. In fact, it is worth noting that in determining whether or not to grant an application for relief against cancellation under Section 253 of the Act, Section 256 of the Act states that the Court may grant relief even though:
• The cancellation is for a breach of an essential term of the lease; or
• The breach is not capable of being remedied.
Clearly, these provisions could have significant ramifications for a landlord who has cancelled a lease and peaceably re-entered the premises with the intention of seeking a new tenant. Obviously, it will not be an issue in all circumstances – often it is very clear that a tenant will do nothing about a landlord validly exercising a right of cancellation – but it is definitely something worth bearing in mind, especially where the parties may have already been in dispute over purported tenant’s breaches and/or the landlords right to cancel.
Article is supplied by East Brewster Ltd in Rotorua – Commercial and Property Law Specialists