How Well Do You Know Your Lease?

The majority of lease arrangements are entered into using the Deed of Lease provided by the Auckland District Law Society.   Whether you are a business owner and tenant, or a landlord, it is important that you understand your rights and obligations.   How well do you know your lease?

The tenants’ right to quiet enjoyment

As a tenant, you will typically hold a right to quiet use and enjoyment of the property.   Contrary to the wording, this right does not mean you can pursue the landlord for noisy neighbours – rather, it means that the landlord will not interfere with your possession and use of the property.   If the landlord were to breach this term, this could give rise to a claim for damages or you could apply for an injunction to stop the interference.

Tenants’ maintenance obligations

Tenants are often responsible for the maintenance and care of the property.   Some of the responsibilities that you may not be aware of include:

• replace and repair glass breakages;
• re-paint and re-decorate the premises when reasonably required (some landlords will often require this near the end of the lease);
• replace all worn or damaged floor coverings (carpet) with ones of equal or better quality;
• maintain any garden and lawn areas to a tidy and cared for condition; and
• make minor repairs to the roof where necessary.

Liability on assignment of your lease

There are a number of different reasons that tenants assign their leases – for example, on sale of a business.   An important part of selling your business is ensuring that it is attractive as possible to a potential purchaser.   This means making sure that a new tenant can continue to stay in the business premises long term, either by way of a long lease or by providing several rights of renewal.   What many people do not realise, however, is that the original tenant’s liability does not necessarily end when they assign the lease (and become an ‘assignor’) to a new tenant.

If you enter into a lease you will typically still be liable for the full current term of that lease, regardless of whether you assign to a new tenant.   If the new tenant breaches any of the conditions of the lease, you could still be liable for that breach.  For example, if the new tenant fails to pay rent, the landlord can often pursue you for the loss, as even after assignment of the lease your original contractual obligation to the landlord remains.

When liability ends

Your liability as assignor will typically end at the expiry of the current lease term in place at the time of assignment.   If the purchaser/assignee exercises a right to renew after that term has expired, this would effectively be a new lease and you will not be liable for a breach by the new tenant during the new term.

You can limit your risk when assigning your lease by asking the landlord to agree to limit your liability (although they do not have to agree).   You could also require the new tenant to provide you with an indemnity.   However, this does not prevent the landlord recovering from you for any breach of the lease in the first instance.