Reinstatement requirements - the effect of a lease renewal

Property

A Landlord client recently contacted us querying what effect a renewal of his Auckland District Law Society (“ADLS”) Deed of Lease might have on his tenant’s obligation to reinstate the leased premises. In this article we discuss the issues.

Under an ADLS lease a tenant is obligated to maintain the premises to the same condition that the premises were in at the commencement of the lease, fair wear and tear excepted. This includes a requirement for the tenant to reinstate any alternations or additions they might have made to the premises over the life of the lease; for example if a doorway has been walled over, the landlord can require that the accessway is re-opened when the lease ends.

Our client’s query centred around the fact that the more recent versions of the ADLS lease use the terminology that a “new lease” is entered into when a lease is renewed, when it might otherwise be assumed that the current lease is simply being extended for a further period.

In our client’s case the lease ran for an initial period of 6 years, and the tenant then had a right to renew the lease for another 3 year period. The landlord wondered whether, if the lease was renewed and the final 3 years passed, did the tenant have to reinstate the premises back to the condition it was in when the lease originally started 9 years ago, or had a new ‘benchmark’ been set at the 6 year renewal.

The answer is that the tenant was required to reinstate the premises back to the condition it was in when the lease commenced 9 years ago. The reason for this is that the tenant’s maintenance obligations require them to reinstate the premises to the condition it had been in at the “commencement date”. The “commencement date” was a defined term under the lease and was clearly recorded in the lease’s First Schedule.

The tenant was required to repair damage which the tenant or the tenant’s invitees might have caused by their specific use of the premises, but was not required to reinstate damage caused only by fair wear and tear i.e. damage caused by natural ageing or the tenant’s ordinary use of the leased area.

Please note that the situation is different if the carpet or the interior walls need to be replaced or repainted.  A standard ADLS lease allows a landlord to require a tenant to re-carpet or repaint whenever the landlord considers that such work is reasonably necessary.  This is the case even if these items become dated or worn solely through fair wear and tear.

As commercial leases often have a long life-span, it can be difficult to remember what condition the premise was in when the lease originally commenced. We therefore strongly suggest that a landlord and tenant agree on a detailed record of the premise’s starting condition, including taking photos if possible. The latest version of the ADLS Deed of Lease allows a landlord and a tenant to attach a “Premises Condition Report” to the lease document for this express purpose.

As an aside, it is also very important that any renewal of the lease is carefully recorded in writing. We can assist with the preparation of the required document which is known as a Deed of Renewal of Lease. If the renewal is not recorded in writing, then you could face an argument that the lease was not properly renewed and has instead reverted to a month-to-month tenancy.

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Copyright © Cavell Leitch. All rights reserved. Redistribution is only permitted with express written permission. For enquiries please contact us. This article by its nature cannot be comprehensive and cannot be relied on by clients as advice. It is provided to assist clients to identify legal issues on which they should seek legal advice. Please consult the professional staff of Cavell Leitch for advice specific to your situation.