In this article we consider the options a landlord has when a tenant has breached its lease. We also consider the steps a landlord is required to take in order to cancel the lease.
Breach of lease
A breach of lease will either be:
- a failure to pay rent; or
- a failure to comply with another of the tenant’s obligations (e.g. a failure to pay operating expenses or outgoings or a failure to keep the leased premises maintained.)
The type and extent of the breach will have some impact on whether a landlord considers cancelling a lease or looking at alternative options. Examples of alternative options include, but are not limited to, seeking orders for specific performance, suing for damages or negotiating a surrender of lease.
Options once breach has occurred
It is important to note that, regardless of the terms of the lease, a landlord’s right to seize a tenant’s chattels to satisfy amounts owing under the lease (known as distraining for rent) was abolished under the Property Law Act 2007 (“Act”).
A landlord should give consideration to the effect the breach has on it before taking any action. A landlord may consider that the breach is so minor that it will not require the tenant to remedy the breach. Common examples of situations where a landlord may decide not to take action are where:
- a guarantor has commenced paying rent instead of the tenant or is ensuring compliance with the tenant’s obligations; or
- the landlord continues to receive rent from the tenant and the breach is of a minor nature e.g. a failure to maintain a minor part of the premises.
If a landlord wants to cancel the lease for breach, the landlord must give notice to the tenant. The matters of which a tenant is required to be notified are set out in the Act and include the following:
- details of the breach and how it can be remedied;
- the time period to remedy the breach (generally 10 working days but will depend on the terms of the lease);
- the consequences of not remedying the breach; and
- the tenant’s right to seek relief from cancellation from the Court.
A landlord may be unable to rely on a notice if any of the prescribed matters have been omitted from that notice. We recommend that landlords seek advice on preparing the notice.
A landlord may cancel the lease if the notice expires unremedied.
If cancellation is the only landlord’s option, there are a number of issues which a landlord should consider. If the tenant will not vacate the premises willingly, a landlord may be required to re-enter the premises. A landlord should only re-enter during daylight hours and should not use force to re-enter the premises i.e. by breaking in. To be on the safe side, a landlord should act as if they have a duty to ensure that the tenant’s chattels, fixtures and fittings are adequately protected until they can be removed by the tenant. In the Auckland District Law Society deed of lease, the tenant’s chattels, fixtures and fittings are deemed to pass to the landlord after five working days. The landlord has the right to keep them, or dispose of them. If a landlord decides to dispose of the chattels, fixtures and fittings, a landlord should satisfy itself that those items do belong to the tenant. We therefore recommend that advice be obtained prior to dealing with any of the tenant’s property.
A landlord must take reasonable steps to re-tenant the property after cancellation otherwise it may prejudice its ability to claim damages from the tenant and/or guarantor. Appropriate efforts to re-tenant the property will depend on the circumstances and therefore we recommend that advice is obtained on how to best protect the landlord’s position.
A landlord has a number of important issues to consider when a tenant breaches a lease and cancellation is the preferred remedy. For that reason, we recommend that landlords seek advice before taking any action to ensure that their position is protected.
Published: 23 September 2010