Earthquakes and leases – what to consider

The sight of the ADLS Fifth Edition 2008(2) commercial lease can bring a feeling of both comfort and familiarity. The ADLS is widely used and understood and is often seen as the form of lease that can ‘get the deal over the line.’ It is generally regarded as a fair lease, and not significantly weighted in favour of either the landlord or the tenant. This is exemplified by clauses like the soft ratchet clause and the wider imposition of obligations on the landlord than other forms of lease.

However despite the feel good factor towards the ADLS lease, events in Christchurch have inevitably highlighted areas of uncertainty and in some cases, deficiency, in the lease. Examples of these include:

  • Untenantability – there is no clear, concise definition of ‘untenantability’ in the ADLS lease. The issue of what constitutes untenantability has gone before the Courts, and will continue to do so. However currently there is no clear definition of what the threshold is for premises to become incapable of occupation.
  • Right to enter and carry out work – whilst there is a right for the landlord to enter the premises to carry out repairs to the premises and to install, inspect, repair, renew or replay services, there is no clear right under the lease to carry out seismic strengthening work.
  • Earthquake prone buildings – the ADLS lease does not adequately cover issues relating to earthquake prone buildings, such as whether landlords should be required to obtain engineering reports assessing the earthquake risk of the building, and to what percentage of the building code should buildings be upgraded to. Whether these are issues that should be covered by the lease itself remains to be seen, but at the very least they should be given consideration.

These issues, as well as others, will no doubt be addressed in future versions of the ADLS lease. As more cases go before the Courts we will likely see further clarification of these issues. Until then, it seems the market will dictate how big these issues really are, and whether the love of the ADLS lease will continue.

Written by: Jourdan Griffin, Senior Solicitor, AlexanderDorrington

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