Improvements rent percentage – Can landlords recover some of their costs?

The aftermath of the Christchurch earthquakes has given rise to a number of commercial and legal issues for landlords and lawyers. From insurance questions, to rental abatement, access and questions of untenantability, the earthquakes have left their mark on the commercial property market.

One such leasing issue which is likely to become increasingly significant is the ability of landlords to charge improvements rent percentage when they are required to seismically strengthen their buildings to bring them up to the required levels of the building code.

The ADLS 2008(2) deed of lease improvements rent percentage clause provides that where a landlord is required by any legislation or requirement to spend money on any improvements, additions or alterations to a property, the landlord can charge an amount additional to the rent up until the next rent review date. The amount that can be charged will be a percentage of what the landlord spends. That percentage is stated in the lease.

The likely relevance of this is where the Council requires landlords to strengthen their buildings to meet the requirements of the building code. The Council is currently assessing various buildings around town to determine what, if any, works are required. Such building code requirements are statutory requirements, so it would seem that a landlord will be within their rights under the ADLS lease to recover the specified amounts from their tenants.

Whether this will be a sticking point with new lease negotiations remains to be seen. It may be that parties negotiate the improvements rent percentage more heavily than in the past. No doubt as landlords begin to carry out the required works to their buildings the improvements rent percentage clauses will be put to the test.

Written by: Jourdan Griffin, Senior Solictior, AlexanderDorrington

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