Form of Lease
Before considering the impact of the restrictions imposed by Alert Level 4 on commercial leases, it is important to review the terms of the lease for the premises. Most commercial leases entered into after 2012 are on the 6th edition ADLS lease form. However, a number of leases on the earlier editions are still in place for tenants that have been in occupation of their premises for a long time. The standard terms of any of these forms of lease may have been amended so the specific lease and any deeds of renewal, variation or assignment need to be checked. Clause 27.5 The 6th edition deed of lease contains a provision in clause 27.5 to state that if there is an emergency (defined in clause 47 of the lease to include an epidemic), and the tenant can’t access the premises to fully conduct its business because of public safety reasons (including a prohibited or restricted access cordon), then a fair proportion of the rent and outgoings cease to be payable for the time that the tenant is unable to gain access to the premises. This clause will apply unless the tenant is an “essential service” which is permitted to remain open during the Alert Level 4 restrictions. The period starts from just before midnight on 25th March 2020, so in practice, rent and outgoings abate from 26th March 2020. For some businesses, it could be considered that the period starts from Alert Level 3 on 23 March 2020 but given the proximity of the dates, most parties are applying clause 27.5 from the unequivocal date of 26th March 2020. Fair proportion There is little case law to give guidance as to what is a “fair proportion” of rent and outgoings. This is likely to be because there is a general recognition that the parties need to be pragmatic and to work together in these circumstances. However, there is one case in which the Judge considered the assessment of a fair proportion of rent payable by the tenant pursuant to clause 27.3 of the ADLS 6th edition lease, arising from damage to the premises caused by the 2013 earthquake in the Wellington region. In that case, the tenant (the owner of a bar in central Wellington) claimed a rent abatement as a large number of windows in the premises needed to be replaced after the earthquake. The Judge allowed the tenant a full abatement of rent for the two months that the tenant’s business was substantially disrupted resulting from scaffolding being erected on the exterior of the building whilst the new windows were installed. The Judge did not allow any abatement for the period of 14 months from the date of damage until commencement of the works, as there was no evidence that the damage affected the tenant’s business operation from the premises during that time. However, as it was a summary judgment proceeding, the Judge noted that he could not assess exactly how much the tenant may have been entitled to by way of rent abatement as there was no valuation evidence directed to that issue; the two month’s rental abatement was proposed by the landlord at the hearing. Furthermore, the facts of that case differ from the current circumstances, as the repair works which impacted on the tenant’s use of the premises were undertaken by the landlord and the Judge noted that they were carried out pre-Christmas which worsened the effect on the tenant’s business, whereas here, the Alert Level 4 restrictions are beyond the control of either party. It is worth noting that the Judge allowed two months’ full rent abatement even though the tenant was still operating from the premises and did generate some income over that time, albeit that the tenant said the patronage of the bar dropped by over 50%. Commercial and Practical Considerations In our view, there are a number of commercial and practical considerations to be taken into account when determining what proportion of rent (if any) should be paid during this time:
Clause 27.6 The first schedule to the 6th edition lease contains a “no access” period. Clause 27.6 allows for either party to terminate the lease if the premises are unable to be accessed for the period specified. The default period provided in the lease is nine months unless the parties have agreed an alternative timeframe. It is unlikely that the Alert Level 4 restrictions will remain for nine months but all leases need to be checked and the relevant dates noted. Insurance Although tenants often hold business interruption insurance, and the landlords hold “loss of rents” insurance, there are often exclusions and restrictions to these policies (including epidemics) and these policies are usually tied to a claim under a material damage policy, which will not apply as the premises are not damaged. We do recommend clients contact their insurers however, to check the terms of any policies. Earlier Edition Leases Even if the tenant occupies the premises under an earlier ADLS lease edition which does not contain a “no access” provision, a landlord should consider granting the tenant a rent abatement, particularly if any of the considerations listed above are applicable. Conclusion A landlord needs to consider the long term relationship with the tenant in negotiating any proportion of rent payable by the tenant during the Alert Level 4 restrictions. As the tenant does not have any access to the premises to fully conduct its business, the proportion of rent (if any) payable by the tenant is likely to be small. Payment of outgoings by the tenant (particularly security services) are reasonable however, to ensure that the tenant’s chattels are kept safe during this time. If you have a property settlements planned over the next 4-5 weeks or have had settlements delayed due to the current lockdown, this article answers some of the questions that we have been asked by our clients on what the next steps are and what the process will be. There are three types of settlement dates: 1. Specific settlement dates For those of you with these dates, if we are still at either Level 4 or Level 3 still prevents the practical settlement attendances from happening, then we will liaise with the other lawyers involved about amending those dates pursuant to 2 or 3 below (should you wish to do so). The legal position as to whether settlement must take place during this time is not clear cut and often depends on the specific circumstances (particularly where it is the sale or purchase of a tenanted property). Legally we are still able to settle if required but it is the practical implications that need to be taken into account. If you require or would like a delay in settlement then we would like to think that the other party would be (using Jacinda Adern’s call to “be kind”) and are likely to also prefer delay. 2. Settlements x number of working days from the Alert Level dropping to 2 or lower It could be some time until the government drops the level to 2 or lower. In those situations where you would like to settle as soon as practical, we will contact the other party about amending the dates to category 3 below. The level 2 settlement date was based on recommendations from the Property Law Section and those dates were mainly used when negotiating a change in the settlement dates during the early stages of the lockdown. 3. Settlements x number of working days from the Alert Level dropping to 3 provided the practical settlement attendances are still possible (physically moving, connection of utilities etc). These settlement dates were used for those negotiations later on in the lockdown period as an early drop to Alert Level 2 became less and less likely. Thursday’s announcement from the government didn’t really clarify things regarding whether final inspections, seeing lawyers to sign paperwork and moving in/out of a property could still take place. Hopefully more guidance will become available so all parties are clear about what is and is not allowed. For those of you whose settlements fall under categories 1 and 2, please consider whether you would like to settle under category 3 instead and we will contact the other party and look to negotiate an amended settlement date. In most circumstances we expect the other party in the transaction would like to do the same. However, bear in mind that the legal obligation for the other party to do so is unclear. Practical steps which you can take in the meantime:
Most importantly Langley Twigg is still operating “business as usual” (albeit from the comfort of our own homes). In the majority of situations the transfer/loan documentation can still be signed via Skype/Zoom/FaceTime (Even using the “House Party” App) and we have access to all files remotely. In the meantime, stay safe, tick off the rest of the items on the household chores list and make the most of the time you have with those lucky enough to share your “bubble”! New Zealand's Property Foreign Buyer Ban
Statistics NZ reveal that in the year ending June 2018, a mere 0.6% of houses sold in the Napier /Hastings area were sold to non NZ residents (27 houses in total). Our observation is that foreign investors tend to operate in the top end of our market where the numbers of sales are constrained (in July and August this year, only one house sold in Napier for more than $1 million).
The amendment to the Overseas Investment Act 2005 that will prevent non-NZ residents buying residential property comes into force on 22 October 2018. How exactly the Act will affect the market remains to be seen. Whereas its impact on first home buyers may be minimal, those trying to sell a top end property may face some headwinds as the ban takes effect, both directly and from the trickle-down as the Auckland market (in which 6% of sales are to non-residents) cools. Here is some of the detail behind the Act, courtesy of fellow Law link firm Anderson Lloyd. Avoiding The Property Law Email Scam
As we were browsing through the news the other day an article caught our eye. The story was about an Australian Masterchef finalist getting caught in a conveyancing property law scam. Australia is moving towards an electronic system nationally at the moment, so this sort of story is definitely a concern on that side of the Tasman, but there are a few differences between Australia and New Zealand that should give kiwis a bit of comfort in their next property transaction. Here is a quick overview on why New Zealand has a far more robust system than Australia, and how Langley Twigg Law operate to keep the transaction scam free:
In this digital age it seems like there will always be scammers trying to find situations to take advantage of. It pays to be cautious when it comes to your email account and as we outlined in an earlier blog, there are definitely a few things you can do at your end to avoid being caught in email scam. Steps to Avoid Email Fraud
To: [email protected] <[email protected]>;
Hi Tom Please could you pay your deposit on 33 Acacia Avenue to us. I’ve included our bank details at the end of this email. Then we can get the ball rolling. Thanks John Account details: Name: JJ Law Number: 01-1199-0032118-00 Ref: 33Acacia John Johnson LLB |Partner Picture JJ Law | 123 High Street Arcadia | www.jjl.com
A decade ago, less than half of the payments made were by electronic funds transfer; cheques were still the most common method. Today, more than 90% are made electronically.
Whilst sending out a cheque is by comparison slow, expensive and subject to the risk of being lost in the post, it does have the advantage that once the cheque is in the hand of the recipient, the ball is in their court to bank it into their correct bank account. In contrast, the responsibility of ensuring that an electronic payment ends up in the bank account of the intended recipient rests with the sender. New Zealand bank account numbers employ a checksum to reduce the risk of transcribing a bank account number incorrectly. However, what if the number is a valid bank account, but not the account number of the intended recipient? For as long as we have been making payments electronically, we have required written evidence of the payee’s bank account in the form of a deposit slip or bank statement to minimise the risk that a payment is made to the wrong account. But as technology has increasingly taken over our lives, this documentary evidence has itself begun to be supplied electronically – mainly as emails or attachments to emails, but sometimes as text messages or by reference to a web page. It’s so much faster and easier to flick the payer your details by computer or smartphone than it ever was back in the day when you either had to meet in person, or find a postage stamp and rely on the post. Email systems and what we now know as the internet were invented originally for easy and open communication between computers around the world, without any priority given to the security of that communication. For that reason, email is in general unencrypted and the computer servers from which they are sent are not subject to any commonly adopted system of authentication; and still we all use them, and have to do so to serve the needs of our clients and our businesses. The near ubiquity of the system and its lack of security has naturally not escaped the attention of ‘hackers’, ‘spammers’ or ‘phishers’ as they are euphemistically termed in the world of technology; thieves by any other name. One of the newer and more sophisticated approaches taken by the thief is to impersonate a person or entity to whom the recipient of the spoof email would expect to pay money. This is a step above the type of emails that tell you that ‘You need to change your AppleID’ or ‘You have received money into your Paypal account’, both inviting you to log in and thereby give away your credentials to the thief. By finding and exploiting a weakness in, or lapse of, security, the thief gains access to an email account and starts to read emails. One simple way is to steal a user name and password. An email is easy to fake and attachments are easy to change, but it is often the timing of the email that leads to success for the thief; it arrives at a time when the recipient is expecting to pay money to that person. By infiltrating an email account and monitoring the traffic, the thief can send a realistic email at a plausible time. Once sitting on the line of communications, the thief can choose to impersonate either party. If the breach has been into an organisation, they might try an intra-firm email appearing to come from the Managing Director to the Accountant giving payment instructions. On the other hand, if it is into a private email account that the thief has hacked, any email trails to and from suppliers or customers would provide a foundation for an attack. The email will usually have bank account details contained in the body of the email or in an authentic-looking attachment. A bank deposit slip, for example, is very susceptible to convincing forgery. Many firms, including law firms, have taken measures to guard against the risk of acting solely on instructions received in an email. To be safe, there has to be an independent verification such as a conversation, face-to-face or by phone, including recitation of the account number, or receipt of an original signed payment authority. Thieves, knowing that it is likely that security measures taken by firms are likely to be stronger than those taken by individuals, are turning towards the latter. In a recent instance, a client who was expecting to pay a deposit to their lawyer received a fake email including bank details. Luckily the hack was discovered a few hours later and swift action by the banks concerned resulted in the funds being frozen, and the police notified. So what steps can you reasonably take to prevent this type of fraud?
Increases to the Kiwisaver Homestart Grant
Good news for all those first home buyers (and some selected previous home buyers) out there. As of 1 August 2016 both the income and house price caps have all increased.
A individual with an income under $85,000.00 or a couple with a joint income under $130,000.00 is now eligible for the HomeStart Grant. The House caps throughout the country have all increased by $50,000.00 for existing homes and $100,000.00 for New Builds. Remember, if you have existing pre-approval for the HomeStart Grant but want to take advantage of these changes you will need to re-apply. For further details be sure to chat to our property law and conveyancing team about how we can help out. The New Health & Safety Legislation
The New Legislation
The Health and Safety at Work Act 2015 (HSWA) is in force from 4 April 2016. The HSWA replaces the duties owed by employers with a broader duty owed by “persons conducting a business or undertaking”. This comes with a new duty to take “reasonably practical steps” to secure workers’ health and safety. Guidelines have yet to be promulgated for commercial landlords, therefore the general regulations will apply. What is a PCBU? The HSWA defines a PCBU as any person or organisation conducting a business or undertaking, whether alone or with others, and whether or not for profit or gain. The HSWA has also defined a ‘workplace’, being a place where work is being carried out, or is customarily carried out. In the context of a commercial rental, the landlord is conducting a business by renting a building and therefore is a PCBU The tenant conducting a business in the building would also be a PCBU, so both tenant and landlord have responsibilities under the Act What duties does a PCBU have? A PCBU has a responsibility to take ‘reasonably practicable steps’ to ensure the safety of workers and other persons. This includes taking reasonably practicable steps to ensure:
Practical Steps for Landlords As a PCBU a landlord should:
We have started to amend our leases to reflect these changes. We recommend that you obtain professional assistance from a recognised provider to assist with these goals. Peter Twigg Partner +64 6 835 8939 [email protected] Maori Land Law Sales - A Summary
As the recent case of Steedman v Apatu in the Maori Land Court (http://tinyurl.com/qe83jtm) illustrates, the sale of Maori land is often not straightforward and can sometimes be contentious.
Maori land is defined and governed by the Te Ture Whenua Maori (Maori Land) Act 1993. Under its terms, an owner of a block of freehold Maori land can alienate (sell or otherwise dispose of the title of) that land. Whilst it is not as simple as selling general land, it can be done. Before a sale can proceed, it is necessary to obtain a certificate of confirmation from the Maori Land Court. For the Court to issue this certificate, a number of legal requirements need to be met, some of which are mechanical issues that may be easily addressed if advice is sought at the outset. However one aspect that is not straightforward is the role of the preferred class of alienees (PCA), members of which have a right of first refusal to acquire Maori land. Typical examples of this class are children and whanaunga of the owner. An offer from a member of the PCA will trump one from outside the PCA, provided that the price is matched; PCA do not get to buy at a discounted price. The owner has the right to choose between offers of two or more interested PCA. The terms of the Maori Land Act are subject to the interpretation of the courts and the case referred to above further refined the definition of whom the PCA comprises. The Maori Land Court may require that the land be advertised or formally offered to PCA before it will confirm the sale. We can assist you to work through this process. Cara Bennett, Senior Associate Find out more about our Maori Land Law practice. Must Do's In Commercial Leasing
With the general acceptance of the Auckland District Law Society commercial lease throughout the country landlords, tenants and commercial land agents can become a little complacent at the time they enter into a new lease.
When entering into an agreement to lease, the parties are agreeing to be locked into the terms and conditions of the standard form. Without reviewing its appropriateness for their circumstances, this can lead to unintended consequences. The post-global financial crisis era has seen good landlords and tenants working together in their mutual best interests to ensure from the landlord’s perspective that their building is well let to a solid tenant, and from the tenant’s perspective that they have a building fit for purpose that they are able to profitably occupy. The Christchurch earthquakes highlighted deficiencies in the standard form and led to it being reworked. Issues such as seismic ratings, no-access periods and remedial works were scarcely thought of in the past. Sustainability and the move towards energy efficiency and green star design ratings can add to a property’s desirability. The new Health and Safety Legislation will add another layer of onerous responsibility onto landlords. Potential tax implications, overseas investment issues being inadvertently triggered, and the complexities of leasing a building “off the plan” all require additional care and thought. Simple things such as who is responsible for keeping the building weather tight, maintaining the insurance for plate glass windows and payment of outgoings can lead to some confusion and may require that the standard form be amended. For both landlord and tenant we recommend that you talk to a member of our team prior to signing an agreement to lease. Peter Twigg, Partner Changes To Financial Reporting for SMEs
Currently all companies are required to prepare annual financial reports which can be both expensive and time consuming. For the majority of Small and Medium Enterprises (“SMEs”) the cost involved in preparing such reports often outweigh any benefit obtained from the information gathered as that information is often known to the directors and shareholders (who are often one and the same).
A number of changes have been proposed by the Ministry of Economic Development in an attempt to find a balance between the cost of reporting and the benefits that are obtained from financial reports which can assist both the directors and shareholders to make economic decisions, to promote accountability and transparency or both. It is proposed that from around mid 2013 small and medium sized companies will no longer be required to prepare General Purpose Financial Reports (“GPFRs). Instead they will be able to prepare special purpose financial reports (“SPFRs”) which may be required to comply with the tax obligations. The New Zealand Institute of Chartered Accountants are currently developing revised requirements in regards to those special purpose financial reports. These changes will affect SMEs and will result in a reduced reporting burden for those companies. While the default position for small or medium sized companies with 10 or more shareholders will be to prepare general purpose financial reports, those companies will be able to opt out of those reporting obligations if 95% of voting shares support the motion. Companies of less than 10 shareholders will only have to prepare GPFRs if shareholders representing the 5% or more of voting shares require it. The reduced reporting obligations will reduce compliance costs for both small and medium sized companies as 1) there will be a reduction in the number of disclosures they all need to make and 2) there will be a move from reasonably complex reporting requirements to a simple type of reporting which is specifically for tax purposes. While it is hard to quantify exactly what the cost and benefits of the amended reporting requirements will be, it has been estimated that savings of at least $100.00 per year for small companies to $5,000.00 for a medium sized company could be made. While indications are that these changes are going to be accepted and into force in mid 2013, there remains an ongoing obligation of directors to keep accurate records and to provide those reports to shareholders. Graham Healey, Langley Twigg |
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