Archive for June, 2011

6/7 Can I leave at any time (and stop paying rent)?

Well no but the question isn’t so commercially naive. It’s true that many residential tenancy agreements can be broken by the tenant with notice in writing however commercial leases are usually harder to break, for longer periods of time and substantially more expensive relative to most residential properties. Commercial tenants are often hard to find and landlords pay substantial fees (legal and real estate) and even incentives in soft markets to secure binding contracts for rental flows necessary to fund their mortgages.

Usually if someone is wanting out of their lease agreement its because they want to downsize or simply can’t afford their monthly payments. Most lease agreements provide for subleasing or assignments but these are not always easy to achieve in a timely manner. It’s true that as a species landlords aren’t known for their philanthropy, and may want a payout to terminate, they are foregoing income and will incur costs, fees and effort to secure a new tenant. If you have behaved well you might get lucky! Landlords should make it their business to get to know all their tenants who are their customers and it may be that other tenants wish to expand and it will be in his interest to secure better tenants on longer term deals.

Regardless if you are having difficulty meeting your rental obligations it is far better not to act unilaterally and engage the landlord in a solution if possible. I have heard of some agreeing to rent reduction or terms to help tenant over rough patches.

The difficulties experienced by our friends in Christchurch over recent months adds another layer to this question also with earthquake damaged buildings, both repairable and beyond repair, those in the red zone but not accessible and those compromised by a neighbour. Clauses 26 and 27 are seldom read carefully in my experience however we now have good reason to understand them properly. In the case of total destruction clause 26 allows for the landlord to determine when to terminate the lease and 27 provides for partial destruction where the premises can be repaired and the tenant may cease rental payments until reinstatement is complete and the landlord is obliged with all reasonable speed to reinstate but with no obligation of releasing the tenant if that tenant is severely inconvenienced by the disruption to their business.

The lesson then is to keep a copy of your lease agreements elsewhere (hopefully not also within a red zone) so that should a serious earthquake occur you get to find out what your obligations, rights and options actually are and second possibly to consider disaster planning, not just backing up digital data but creating a plan of how to operate for weeks or months while being locked away from your premises. Lastly consider business interruption insurance, landlords often buy cover for loss of rents and so tenants can get insurance for costs arising from a major interruption causing them to locked out of their offices.

If anyone from Christchurch can add first hand experience to this topic I should be glad to hear from you!

June 30 2011 | Uncategorized | No Comments »