Destruction and leases

What is happening in Christchurch is impacting on the New Zealand property industry in all sorts of ways. One of these is the debate regarding contractual obligations between the parties. Most leases inadequately deal with the situation in Christchurch. Whilst they may deal with partial destruction and total destruction they do not adequately cover many of the circumstances that have arisen in the cordon area.

The ADLS lease does not anticipate what will happen if a building is judged able to be occupied but access is denied because of the cordon. Nor does it deal with the circumstances where a lease remains in place but the tenant refuses to occupy the building – not because the building will fall down but because the building next to it might. No doubt we will see litigation dealing with these various contractual obligations but it is timely to consider lease documentation being generated now and to deal with these issues in the lease contract.

A recent High Court decision is of interest, not least of all because of the opening line of the judgement which reads:

“On 1 September 2007 a conveyancer’s nightmare played out at 2 Kingsland Terrace in Auckland”.

The case relates to termination of a lease following damage.

A fire on day 1 of a lease meant premises were unable to be occupied. The lease was based on the Auckland District Law Society form of lease. It turned out that it would take more than 10 months to fix the building during the fire. During the course of the 10 months the landlord attempted to cancel the lease. The tenant objected. Litigation followed. The issue was whether the premises were in fact “untenantable”.

The tenant argued that because they were willing to lease the property it must be tenantable. The District Court decision had decided that that was not necessarily the case and that the landlord had validly terminated the lease. The matter went on appeal to the High Court.

In fact the High Court agreed with the District Court. The judge stated that the word “untenantable” is an objective state to be determined on the relevant facts. His view was that the objective assessment could not be watered down or coloured by the subjective preferences of either the landlord or the tenant. In this case the roof and ceiling had to be demolished, the debris taken away and then the structures rebuilt. The electricity and air-conditioning systems had to be replaced. There was no water or electricity. Flooring had to be replaced. All areas in the building suffered some damage. The level of disruption was considerable. The premises here were clearly untenantable.

See JG Russell, JA Calvo and PG Annear as trustees of the Manifold Trust v BJ Robinson, IW Stevenson as the trustees of the Kevin Rand Family Trust (HC Auckland) CIV-2010-404-5992 1 April 2011.

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