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Unfortunately situations where Tenants are unable to pay rent on their leased commercial premises happens all too often. As a commercial property Landlord, knowing your rights and what to do if this situation arises will help minimise your losses.
There is a prescribed procedure under the Property Law Act 2007 ("the Act") which the Landlord must follow in order to cancel a Lease for non-payment of rent and/or outgoings.
It must serve a Notice of Intention to Cancel a Lease on a defaulting Tenant. The notice requires an explanation of the nature and extent of the breach, what must be completed to rectify the breach, the period of time in which the breach must be remedied and the consequences if the Tenant does not remedy the breach.
The Landlord must clearly spell out its intention to cancel the Lease for the breach and the Tenant must also be reminded of its rights to apply to a Court for a relief against cancellation along with the ability to seek legal advice.
A Landlord must give a minimum notice period to the Tenant if there are rent arrears, before the Landlord may exercise any right to cancel the Lease. A Landlord can serve a notice as soon as the rent is one day in arrears. We recommend this to get the minimum notice period started which will therefore minimise the subsequent loss suffered by the Landlord (if any).
Following service of the Notice of Intention to Cancel the Lease and at the expiry of the period specified in that notice, if the breach has not been remedied by the Tenant the Lease can be cancelled. Again there is a prescribed process in the Act to enable this to occur.
The most common, cost effective and timely option is to re-enter the land "peacefully" and change the locks. If the Tenant chooses not to vacate the premises willingly then really the only option is to apply for an Order for Possession of Land through the Court. We recommend seeking immediate legal advice if the Tenant refuses to vacate.
Cancellation of the Lease does not prevent the Landlord from suing the Tenant (and/or any guarantors) for any money owing or for damages relating to a breach of the Lease. However, the Landlord does have a duty to minimise its loss and therefore taking early action along with starting the process of finding a replacement Tenant is recommended.
At McVeagh Fleming we are experienced in dealing with all matters arising from commercial leasing. We can draft and arrange for service of Notices on behalf of the Landlord which will give you confidence that the Notice complies with the Act and can be relied upon to cancel the Lease if the worst happens and the Tenant does not or is unable to remedy the default.
For further information and advice in respect to your leasing issues, please contact Brandon Cullen on (09) 966 3609 (bcullen@mcveaghfleming.co.nz).
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© McVeagh Fleming 2017
This article is published for general information purposes only. Legal content in this article is necessarily of a general nature and should not be relied upon as legal advice. If you require specific legal advice in respect of any legal issue, you should always engage a lawyer to provide that advice.
