Category Archives: Pro Legal

Bramwell Bate specialises in providing corporate and commercial legal services to a broad range of businesses throughout Hawke’s Bay.  The team can also advise on buying and selling property, estate planning and trusts, relationship property and family law, among others. Our team’s skills are diverse and we have the expertise to assist with all your legal requirements. Visit us at www.bramwellbate.co.nz 

Have You Got the Right Lease?

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It is probably fair to say that most small businesses do not own their own premises and, in such situations, it is necessary to “lease” premises.

An Agreement to Lease (ATL) is usually the preliminary document, prepared by a commercial real estate agent, that contains the basic information agreed on by the Landlord and Tenant.

The formal Deed of Lease replaces the ATL and is usually prepared in accordance with the terms and conditions contained in the ATL.

Agreement to Lease

As mentioned above, this is the precursor to the Deed of Lease and generally only contains the basic information. However, it is important to ensure that the Agreement covers the following elements:

  • A clearly defined description of the premises;
  • The term of the Lease;
  • The dates of the Lease or how they will be calculated:
    • Commencement date;
    • Any renewal dates;
    • Rent review dates; and
    • Final expiry date.

• What rights of renewal the Tenant has;

• How rent will be reviewed (e.g. market rent review or CPI rent review);

  • Annual rent;
  • Details of the outgoings:
    • What outgoings are charged;
    • Estimated cost; and
    • Whether cost included or in addition to the rental.
  • The agreed business use;
  • Type of insurance for the building held by the Landlord;
  • All Landlords fixtures, fittings, and chattels.

It is important to note that the ATL is a binding contract between the Landlord and a prospective Tenant and while it is only intended to be a temporary document until a full “Deed of Lease” is executed, the ATL will provide that the parties will be bound by the provisions of the Deed of Lease as if it had been signed.

Considering this, it is very important that a Tenant not only be aware of and be advised on the terms of the ATL but also the Deed of Lease prior to signing the ATL. For example, the Landlord may require (where a company is to be the tenant) for individuals to be personal guarantors of the Lease. It is essential that the parties to the Lease, including the proposed personal guarantors, are aware of the implications of the guarantee and how, as an example, it is treated on assignment of the Lease by the Tenant.

Deed of Lease

This replaces the ATL and is prepared based on the information contained in the ATL.

What is contained in the Deed of Lease will vary, however it should contain all the main details set out in the ATL (such as listed above), and you would also expect the Deed of Lease to include details of:

  • Responsibility for legal costs in relation to the Lease and future documents required;
  • Tenant’s obligations as to maintenance and care of premises;
  • Landlord’s responsibility for maintenance;
  • Signage – does the Landlord need to consent to Tenant’s signage?
  • Reinstatement of premises on termination of Lease;
  • Assignment of the Lease;
  • Damage or destruction of premises;
  • Premise condition report.

Can you rely on an Agreement to Lease alone?
While it is not uncommon for a tenancy to commence prior to the Deed of Lease being executed, we would advise that it be signed prior to the Tenant taking possession of the premises.

Given that the ATL binds the parties to the terms of the Deed of Lease, it is workable for the tenancy to be bound by the ATL however there are circumstances where the Deed of Lease will be required, such as:

  • Finance arrangements – whether you are a Landlord or a Tenant, your bank may require a copy of the Deed of Lease prior to agreeing to advance funds;
  • To confirm dates –where an ATL contained provisions as to how dates will be calculated, the Deed of Lease will record the confirmed dates;
  • Sale of premises– if the Landlord wishes to sell the premises, the Deed of Lease will be required.
  • Assignment of Lease – if the Tenant wishes to assign the Lease then again, the Deed of Lease will be required.

Expect the best, plan for the worst and prepare to be surprised

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It is important for every business to have formal Terms of Trade. When comparing large businesses to small, it’s fair to say the larger the business the more likely it will have written Terms of Trade.

While there may be some who have operated for a substantial amount of time without written Terms of Trade and have never had cause to require them, every business should “expect the best, plan for the worst and prepare to be surprised.”

Terms of Trade should set out the conditions and agreements that the business and the customer have made at the commencement of a transaction including the obligations of the business and the customer (if any). This benefits both the business and the customer – the customer enters the relationship with realistic expectations and the business has defined the standards it intends to meet.

Benefits

Well drafted Terms of Trade should assist a business in resolving issues with a customer. For example, the terms can help a business to collect debts, should the need arise, and should also specify:

  • How the price will be determined (if a quote is not given);
  • When and how payment is to be made;
  • Consequence of non-payment, such as penalty interest on unpaid amounts and the ability for the business to recover its costs in collecting the debt from the customer.By recording these matters at the outset, the customer cannot refute them or argue that they do not apply, or they did not agree to them.Tailor-madeWhile it’s possible to download a template form of Terms of Trade, it is advisable for each business to tailor their Terms of Trade to their specific circumstances and requirements.For example, the question of liability should be included in Terms of Trade and “one size” may not fit all. The question of liability will first be dependent on whether it is a “business to business” or a “business to consumer” sale.

Business to Business

The Consumer Guarantees Act 1993 (CGA) will not apply and it is therefore important to specify the businesses potential liability and the extent that liability is to be excluded. For example, a business may wish to exclude liability for losses suffered by a customer that could not be reasonably foreseen. A business may also wish to limit its liability to a specified dollar amount or to exclude liability completely.

Business to Consumer

The CGA will apply where a business (acting in trade) supplies goods or services to a consumer. Where the CGA applies various warranties will automatically be implied into the contract between the business and the customer. Importantly a business cannot contract out of the CGA when dealing with a consumer.

Notwithstanding that the CGA may apply a business may still want to limit its liability for example for “indirect” or “unforeseen losses”. However, if a business does this it must then be determined whether the Terms of Trade are considered a “standard form consumer contract” and whether any of the terms are “unfair contract terms”.

Acceptance of Terms

It is important to be able to evidence that a customer accepted the Terms of Trade. A business may have well drafted Terms of Trade that provide them with all the protections required however this will be of no use if it is unable to show that the customer had agreed to the terms.

For example, a business that prints its terms on the back of an invoice may have difficulty proving that the customer accepted them. The obvious issue here is that a customer may claim that the first time they saw the terms was on receipt of the invoice, after the transaction had essentially been completed and may argue therefore that they never accepted the terms.

Where a business provides quotes, good practice would be to specify that accepting the quote constitutes acceptance of the businesses Terms of Trade, which should be provided with the quote.

The obvious way to evidence acceptance of the Terms of Trade would be to have the customer physically sign those terms prior to commencing work. It is accepted however that this may not always be appropriate however emailed confirmation from the customer accepting the Terms of Trade would also suffice.

Where there’s a will, there’s a way

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On death a person’s assets form their “estate” which is subject to the wishes or intentions of the deceased’s Will or if they do not have a Will by the “rules on intestacy.”

While many would acknowledge that they should have an up-to-date Will, it is surprising how many people do not have a current Will or one at all.

Regularly reviewing your Will is as important as initially making one to ensure that your Will reflects your current circumstances and any changes in your life such as the death of a close family member, the creation of a trust or establishment or entry into your own business.

Some matters to consider when creating or reviewing a Will are:

1. Identity of your Executors and Trustees. Who would you like to administer your estate or are those currently selected still appropriate?

2. Funeral directions. Do you wish to make such directions or change any existing directions?

3. Changes in your personal circumstances. Unless your Will was made in contemplation of marriage then any Will you have will be automatically revoked when you marry.

You also need to consider your Will if your relationship ends. If you separate with the intention of ending the marriage, provisions in your Will relating to your spouse will remain valid until the marriage is legally dissolved (that is, you are divorced), only then the gifts are null and void.

4. Changes in assets and liabilities. For example, if you have acquired a new asset, such as a business, then you may wish to give the business (or the shares) to a specific person. If you don’t make a specific direction then (if you have a Will) it will simply form part of your estate and go to the beneficiaries.

5. Changes to your family. If you have had children then you may wish to appoint a testamentary guardian.

6. Death of a family member or beneficiary. For obvious reasons this may necessitate a change to your Will.

7. Setting up a family trust. If you have or have set up a family trust you will need to ensure that your Will reflects this and (if appropriate) refers to it.

8. Gifts to charities or organisations. You may wish to leave money to a favourite charity or organisation.

9. Specific gifts. If you want to leave an important item such as jewellery or a family heirloom to a particular person then this should be specified in your Will.

If you die “intestate”, i.e. without a Will, then your estate is subject to the “rules on intestacy” which prescribes to whom, and in what proportions, your estate will be distributed, which may not reflect your wishes.

To help illustrate the point, let’s consider an example:

John and Jane are married, with a son and two daughters. John and Jane have a jointly owned home and a joint bank account. John also has his own construction company. John’s son, James, operates the business with him and it is John’s wish for James to take over the business from him when he retires.

John dies unexpectedly and he does not have a Will.

The home and bank account will pass to Jane by survivorship, however the business will fall into John’s estate and be governed by the “rules on intestacy”.

The business is valued at $515,000.00.

Jane will receive all of John’s personal possessions (basically everything other than land, buildings and money) and shares valued to $275,000.00, which is made up of:

• The legally prescribed set amount of $155,000.00; and

• A 1/3 of the balance of the estate of $120,000.00.

James and his two sisters will each receive shares valued to $80,000.00 (being the other two thirds of the balance of the estate).

This does not reflect John’s wish to pass the business to James and in addition leaves control of the business to Jane (53.39%) while James (and his two sisters) would only have 15.53% each. Significantly James would only be a minority shareholder and would not be able to prevent the business being sold by his mother and sisters.

Finally, another advantage to having a Will is that it usually costs more and takes longer to administer an intestate person’s estate.

If you do not have a Will or have not reviewed your Will for several years then I advise that you discuss this with your lawyer sooner rather than later.

New Bill to manage Meth contamination

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On 23 May 2017, the Residential Tenancies Amendment Bill (No. 2) was introduced to Parliament. This Bill proposes amendments to the Residential Tenancies Act and is significant as it seeks to, as stated by Nick Smith MP who introduced the Bill, to “ensure our tenancy laws better manage methamphetamine contamination, liability for careless damage and the tenancy of unsuitable properties”.

We will have to wait to see if the Bill is passed into law in its current form, with amendments or not at all however despite its early stage the potential changes are worth discussing.

Methamphetamine

The Bill defines “methamphetamine- contamination” as “in relation to premises, means that methamphetamine is present in any part of the premises at a level above any prescribed maximum acceptable level”.

The Bill also allows the government to regulate, among other things, as to what will be the “maximum acceptable level of methamphetamine for premises”. Comments from Nick Smith, MP indicate that the new standard introduced in the past few weeks by Standards New Zealand, “Testing and decontamination of methamphetamine contaminated premises” will be where the prescribed “maximum acceptable level” will be found.

Significantly this Standard determines that a property will be considered contaminated if it has methamphetamine present at levels exceeding 1.5μg/100 cm2 – this is an increase from the previous limit of 0.5μg/100 cm2.

The Bill also provides that a Landlord:

  • must not rent a property if they know that the premises are “methamphetamine- contaminated” or has not been “decontaminated in accordance with the prescribed decontamination process”.
  • has a right to enter the premises to test for methamphetamine at any time between 8am and 7pm after giving the tenant at least 48 hours’ notice (but not more than 14 days’ notice) of the intended entry and the reason for it.
  • must give the tenant notice of the results of the testing for methamphetamine within 7 days of receiving the results.

Where tests for methamphetamine have been carried out and it has been established that the property is “methamphetamine- contaminated” then:

• If the tenant isn’t responsible rent ceases to be payable;

• The landlord can terminate the tenancy on “not less than 7 days” notice;

• The tenant can terminate the tenancy on “not less than 2 days’ notice”.

Tenant’s Liability for Damage

The Court of Appeal held, in Gikker & Rouse v Osaki & Anor {2016] NZCA 130, that a tenant is not financially liable for damage to a rental property caused accidentally or negligently and that a tenant will have the benefit of the Landlord’s insurance.

Osaki highlights the importance of insurance for Landlords and that the insurance cover is sufficient to ensure that it isn’t necessary to claim against a Tenant personally.

The Bill seeks to address the impact of Osaki. A general principle of the Bill is that the tenant is not liable for damage however a tenant will not be “excused from liability” if

• The damage was intentional;

• The damage was the result of an act or omission by the tenant and the act or omission “occurred on or about the premises and constitutes an imprisonable offence”;

• The damage would have been covered by insurance save for an act or omission by the tenant.

Notwithstanding this a tenant will also be liable for damage caused by “a careless act of omission” however any such liability will be limited to either the landlord’s insurance excess or four weeks rent, whichever is the lower.

Unlawful residential premises

The Bill defines “unlawful residential premises” as residential premises that are used for occupation as a residence but it “cannot lawfully be occupied for residential purposes by that person” and where the “landlord’s failure to comply” with its obligations “has caused the occupation by that person to be unlawful or has contributed to that unlawful occupation”.

If passed the Bill will give the Tenancy Tribunal full jurisdiction over “unlawful residential premises” thereby giving the Tenancy Tribunal specific enforcement powers for “unlawful residential premises” such as the power to order that the tenant be refunded for rent paid for the whole period that the property was unlawfully used as a residential premises.

The Bill must pass through a number of stages prior to receiving royal assent and passing into law so we will keep an eye on its progress, as the changes intended are potentially significant.