This article by Steven Moe was published by the Spinoff December 4 2017

With the rise of China, Japan has taken something of a backseat in trade discussions. Lawyer Steven Moe says New Zealand’s relationship with the world’s third largest economy is still going strong, but may need some TLC.

Whenever foreign investment or overseas strategies are mentioned in New Zealand boardrooms these days it is most likely that the topic is China and its growing influence. As a result it is sometimes easy to forget that Japan and New Zealand have had a very long relationship which goes back many decades and which continues today. But what shape does that relationship take now, and what are the unique characteristics of it – and where do the opportunities lie for further growth?

The Japan New Zealand Business Council met recently in Osaka for its annual conference to discuss these and other issues. The council started in 1974, and is a member-based organisation promoting the growth of business relationships between Japan and New Zealand. This was the 44th conference, with the next one to be held in Auckland in November 2018. Participants came from large corporations, small and medium sized businesses, government and service providers. I was one of the 61 New Zealand representatives who flew to Osaka from New Zealand, out of more than 130 attendees.

To give a sense of the scale and depth of the relationship, it is first important to note that Japan is still the third largest economy in the world. Japan also is one of the top five markets for New Zealand, and is an important trading partner with New Zealand Trade and Enterprise (NZTE) at the conference putting the figure on two way trade at over NZD $7 billion.

This can be broken down further to NZ exports of $3.86 billion for the year ending December 2016, while from Japan to New Zealand the total was $3.55 billion. Dominating the trade from the New Zealand side are various natural and food products such as dairy, beef, fish, wood and aluminium, with an increasing focus on tech exports as well. From Japan, the goods mainly include vehicles, equipment and electronic goods. There is also a lot of direct investment into New Zealand by Japanese companies and approximately 100,000 Japanese tourists per year. For more on these and other aspects of the relationship some recent research called “Through the Japan Looking Glass” by The New Zealand Story Group is worth a look here.

The topics covered at the conference included the current economic outlook, infrastructure, manufacturing, trade and the potential for a free trade agreement, agriculture, science and technology. The uniting theme was sports, since the Rugby World Cup will be held in Japan in a few years, followed by the Olympics in 2020. One of the other themes to emerge in each of these sessions was the similarities faced by both Japan and New Zealand in each of these areas.

Beyond the statistics and trade figures there is something else going on though – both countries share many similarities and deep connections. Perhaps due to both being islands, each culture has a strong sense of identity and independence from the rest of the world. Both have similar landscapes with active volcanoes, rivers, lakes, forests – and earthquakes.

Unfortunately, the world’s eye on the Christchurch earthquakes in 2011 shifted across the Pacific Ocean to the major quake that hit Japan just a few weeks later. I was living in Tokyo at that time and vividly recall flying back from helping my parents clean up their house in Christchurch only to be in Japan (on the 22nd floor of a skyscraper) for the Japan earthquake.

As well as all these connections, it is also worth remembering that Japanese became one of the first Asian languages offered in New Zealand schools, and there is a generation of Kiwis who learned it. Many young people have gone on the JET programme teaching English, while others have gone there on a one year working holiday visa.

But what does all this actually mean? Perhaps it is time that Japan was placed back on the agenda at Kiwi board meetings that discuss overseas strategies. There is a ready market in Japan for quality goods, and particularly those that are foods with health benefits – but also increasingly from our world leading (and growing) tech sector. It would certainly pay to keep Japan in the picture going forward, as there are real opportunities for New Zealand businesses to explore there when they look to grow their overseas business or first start developing that strategy.

Steven Moe is a lawyer based in Christchurch at Parry Field Lawyers who recently returned to New Zealand after 10 years at an international law firms in London, Sydney and Tokyo. He works with Kiwi companies going offshore, as well as foreign companies looking to invest in New Zealand. He has a podcast Seeds: Talking Purpose where he interviews entrepreneurs and social enterprises about their journeys.

stevenmoe@parryfield.com

03 3488480

New International Tax Legislation

Under FATCA (Foreign Account Tax Compliance Act), adopted by New Zealand in 2014, the United States aims to detect and prevent tax evasion by US citizens and tax residents on their worldwide income from financial assets owned by an offshore entity, which they control e.g. a family trust or company settled/incorporated in New Zealand.

Additionally, from 1 July 2017, New Zealand endorsed the OECD’s standard Automatic Exchange of Financial Information in Tax matters (AEOI), which incorporates the Common Reporting Standard (CRS),a global version of FATCA. New Zealand is 1 of 101 OECD nations to have signed a multi-lateral agreement to combat offshore tax evasion on a global scale. All citizens of these countries are subject to the same level of tax scrutiny in New Zealand and the other member or participating countries, as are Americans under FATCA.

All entities (family trusts, companies and partnerships, but not individuals) have to comply with this legislation. Al professionals, such as ourselves, accountants, investment fund managers/advisors etc. needs to advise their “entity” clients of their obligations under this complex and far-reaching legislation.

Is your trust/company/partnership (“entity”) a Financial Institution under FATCA or CRS?

It is important to know whether or not your entity (trust, company, partnership) is either a Foreign Financial Institution (FFI) under FATCA or a Financial Institution (FI) under CRS, both or neither. If your entity is a FFI then it needs to register on the United States’ Internal Revenue Services (IRS) site. If your entity is a FI under CRS then when the IRD site is up and running next year, your entity will have to disclose to IRD all financial information and personal details for those trustees and beneficiaries who are residing overseas in one of the 100 other participating jurisdictions combating offshore tax evasion.

We are in the process of corresponding with all of our trust clients and providing them with a form to assist the trustees decide whether or not their trust has to register on the US site and ultimately, report to our IRD under CRS. If you are a trust client of ours, and you have not yet received this form, please contact us urgently.

Can this legislation be ignored?

Unfortunately, registration on the IRS site under FATCA is compulsory even if your trust is not “controlled” by any US tax resident or citizen, provided:

(a) It has some financial assets (shares, bonds, term deposits) managed by an investment advisor/fund manager OR an FFI, such as one of our corporate trustees is one of the trustees of your trust AND

(b) More than 50% of the trust’s gross income for the proceeding calendar year comes from financial assets (excluding rental from property).

Unfortunately, (b) above will be satisfied even if the only income-producing asset of the trust is a bank account which earns minimal interest. However, if the trust or other entity earns the majority of its income from residential rentals, it will not satisfy (b) above.
Once registered, no further personal information disclosure is needed, if there is no such “control” by a US tax resident or citizen. By contrast, registration on the IRD site under CRS is required only if your entity is “controlled” by anyone who resides overseas (but not the US).

What if my entity is not a FFI or FI?

If your entity is neither a FFI or FI then it will, by default, be a NFFE (Not a Foreign Financial Entity) or a NFE (Not a Financial Entity). As such, your entity will not have registration requirements, but may have reporting obligations to other FFI’s/FI’s such as a bank with which your entity has funds or an investment house/advisor with whom your entity has a share portfolio. Such institutions are in the process of sending, and will continue to send, to their customers/clients Self-Certification forms similar to those we are sending to our client trusts. If the completion of these forms conclude that your entity is a passive NFFE/NFE then it must, on request, disclose details of US and other overseas controlling persons to the entity’s bank or investment advisor etc., which report to IRD. If however, less than 50% of your entity’s gross income for the past calendar year is from passive income (including rental from property) then it will be deemed an active NFFE and will have no reporting obligations, even if it is “controlled” by a US or other overseas resident person.

These are complex matters, but compliance is mandatory with not unsubstantial fines able to be imposed on those who breach their obligations under this legislation.
Should you have any query regarding these matters and how they may affect your trust, company or partnership, then please consult with us because to ignore this legislation is clearly, not an option.

This article is not a substitute for legal advice and you should talk to a lawyer about your specific situation. Should you need any assistance, please contact Pat Rotherham at Parry Field Lawyers (348-8480) patrotherham@parryfield.com

This article is part of an Innovation Series by Andrew King for Lawfest NZ. This series interviews legal professionals with experience in innovation and technology in the legal sector. You can read more here.

An interview with Steven Moe, Senior Associate, Parry Field Lawyers

What has been your experience or interaction with legal innovation and technology?

I returned to New Zealand after 10 years working for an international law firm (Norton Rose Fulbright) where I was one of 3,800 lawyers in 55 offices. That role took me as a corporate lawyer to work for several years in each of Tokyo, London and Sydney. So I’ve seen first-hand how the biggest law firms operate and push the boundaries by adopting new technology and trying new things. On returning to New Zealand last year I was really keen to explore what that might look like here too. The context for that exploration has been keeping this great quote from Joshua Gan at the front of mind:

“Successful firms that are disrupted are not complacent or poorly managed. Instead, they continue on the path that brought them to success.”

What changes have you seen in your firm, team or organisation recently?

At the end of last year I got really tired of reading about disruption in every article but often with only speculation left as the takeaway about ‘what next’. So we investigated for ourselves what it might actually mean for a medium sized firm like ours (8 Partners, 40 staff). The direct result was this year taking concrete action and forming a joint venture company with software developers who had developed AI chat bots before. This software start-up has been a wild yet fun ride of learning and growth. It’s called Active Associate and it is developing an AI-enabled customer engagement solution for law firms. This solution is addressing some serious pain points for medium size firms such as a high amount of time spent on non-billable work and difficulties in maintaining a client base that can support their billable targets. Consumers are able to access the solution 24×7 via Facebook Messenger and ‘widgets’ on a firm’s website from their phones, tablets or laptops, and interact with it using natural language to get quick helpful answers to their legal questions. While helping future and current customers, the solution captures user information which can then be delivered to the law firm increasing workflow efficiencies and reducing the wasted time dealing with tire kickers. We’ve had a warm reception from forward-looking law firms in NZ and Australia who have already become our Innovation Partners and those that are about to join the Programme (we are open to a few more at this stage).

What challenges or barriers do you face when innovating or looking to use new tech?

Understanding what is hype and what is reality – it’s a grey mist you have to really squint to see through. For example the term “AI” conjures up images for some people of robots taking our jobs when for the foreseeable future it is better to think of it as a description for natural interaction with consumers.

What opportunities do you see with legal innovation?

The next generations are first going to turn to their phones before they walk through the physical doors of an imposing looking law firm. It will be critical for those law firms who want to survive that they prepare and are ready to interact with that next gen thinking.

With greater adoption of tech and more innovation, how do you see your role evolving in the future?

My hope is that we focus more on the true value add that we can offer as professionals and get less tied down with the routine tasks that none of us really enjoy.

LawFest is focused on innovation and tech in the legal profession, why do you think it’s important for legal professionals to attend an event like LawFest?

It’s vital to stay in touch with the latest trends and developments and LawFest offers a great opportunity to hear from the best innovators in the field. By having a representative attend they can then go back and challenge the assumptions and old ways of thinking that will doom a law firm to irrelevance by just continuing to do what has worked in the past.

The Financial Markets Authority has just released the first statistics relating to crowdfunding in New Zealand. It shows that beyond any doubt this is an option for people to consider in order to raise funds for their new venture. A compelling story and provable business case is all that may be necessary to raise the amounts needed to take a business to the next level.

Some of the key highlights that stood out to us are:

A total of $74.2 million in total was raised all by investor crowdfunding;
In relation to peer to peer lending there are 7 such entities registered and in the year ending 30 June 2017:

a) $259.9 million is currently loaned to individuals; and

b) $29.5 million loaned to businesses.

Interestingly the average value for new loans was just $8,771.

In relation to crowdfunding it is worth quoting the relevant part with the key statistics: “Of the eight licensed crowdfunding providers, 5 facilitated offers during the reporting period. There were a total of 50 offers, with 34 successfully meeting their funding target. 263 potential issuers were declined. 1,597 investors invested in crowdfunding for the first time, with 2,331 investing through the crowdfunding system in the year.”

That picture is consistent with something we have seen recently which is some social enterprises choosing to raise money in this way – for example Cultivate Christchurch with their “Broccoli Bonds” and Kilmarnock Enterprises with their crowdfunding campaign.

If you are looking to raise money for your venture then it is worth considering these options. Keep in mind as well the restrictions on seeking funding from others – for an overview on this see our other articles here.

For more information on the FMA’s announcement and the statistics they have published you can visit here.

上任伊始，新西兰新政府已经宣布了其针对海外投资系统的政策调整。通过重新定义原有法律中的“敏感土地”一词，将特定类型的住宅涵盖进这一范畴中，从而限制非居民身份海外投资者在新西兰购买房产。现阶段其他被海外投资法（”Overseas Investment Act”, OIA）定义为“敏感”的土地类型包括例如与保护区和公园接壤的土地，河流湖泊滩岸，或农用土地（及其他）。获得更详细的海外投资流程请点击这里，获得更多移民新西兰的关键信息请点击这里。

新西兰过去几年的房价持续走高，因此该政策调整意在抑制海外投机资本继续抬高房价。政府的最终目标是改善因房价的持续增长而导致的新西兰本地居民无力购房的现状，特别是在房屋均价非常高的奥克兰地区。

新任贸易部长David Parker日前在新闻采访中指出：“我们必须搞定土地问题。我们完全不能接受新西兰政府失去对海外资本购买本国土地的掌控。同时我们正在建立和完善相关机制。”

虽然目的已经明确，但是工党政府的实施细节和时间还没有敲定。另外也有一些关注诸如此类的禁令是否会因既存的自由贸易相关协定或即将加入的环太平洋合作伙伴关系（”Trans Pacific Partnership”, TPP）而在实施过程中受阻。但是，政策调整的意图是明确的而且很有可能会很快实施。

我们会及时更新今后陆续出台的相关政策细节，在此之前，我们将这篇简文投入公众视野，希望引起关注。我们事务所为有资产投资意向的海外投资者提供法律服务并希望能为您所关心的问题提供答案。

我们已经准备了一个更为详尽介绍新西兰投资环境操作指引，名为《投资新西兰》。如果您有相关的需求，请与我们联系，我们会以电子邮件的形式发送给您。

This article is not a substitute for legal advice and you should talk to a lawyer about your specific situation. Should you need any assistance or would like to request a copy of the “Doing Business in New Zealand” guide, please contact Kris Morrison at Parry Field Lawyers (348-8480) krismorrison@parryfield.com

What happens if…?

What happens if I have a car accident?

What happens if I get a letter from someone holding me responsible for damage to their property?

What happens if I turn on my computer, and I’m greeted by a hacker’s message, instructing me to pay bitcoin ransom in order to access my files?

The resilience of a business is often defined by the risk management systems that are in place. The risks that a business will need to manage fall, broadly speaking into three categories – Physical Assets, Liabilities, and increasingly, Cyber. Every business has some form of risk that will fall into these three categories.

Physical Assets – every business has them – a phone or a laptop, machinery or stock, premises or a vehicle. What does it mean for your business if these assets are taken out of the picture? Most businesses depend on some form of physical assets, and any loss or damage to these assets can interrupt the operation of the business, costing money. It’s worth thinking about if you can afford to replace your assets quickly, and how much is any down time going to cost your business?

Liability – you don’t actually have to do something wrong for liability risks to affect your business – an allegation is enough. All it can take is for a letter or an email, holding you responsible for damage to another persons’ property, and this will cost your business money – simply by defending your business from the allegation.

Cyber – We are becoming increasingly dependent on technology to conduct business, and with this comes risk from when the technology is disrupted – from ransom-ware attacks, to duplicate invoices with a new account number, to breaches of the Privacy Act – the implications of a cyber attack can be far reaching for a business. How long can you continue to trade if you can’t get into your system or backup files?

All businesses benefit from having a risk management plan which utilizes four potential strategies to manage risk:

Avoid risk – Change plans to eliminate the problem
Control/Mitigate risk; – Reduce the probability and/or impact through a proactive approach
Accept risk – Take the chance of negative impact or budget for contingency
Transfer risk – Outsource risk by way insurance

The role of an insurance broker is to provide advice on identifying business risk and recommending cost effective solutions to manage them. He or she can then advise you what risks should be insured, and then if you agree, canvass the insurance market to obtain the best insurance solution that is tailored to fit the needs of your business, at a competitive price.

It’s finding out your business’ individual risk appetite that makes a good insurance broker a valuable asset to your professional services team.

If you don’t know the answer to the question: “What happens if…” then you should consider seeking advice before something goes wrong.

Chelsea is passionate about the growth and development of the emerging Social Enterprise sector. Born and raised in Christchurch, she wants to support the businesses that are doing good for our communities. Our mission at Crombie Lockwood is to position your business to financially survive any insurable event. Chelsea would welcome any opportunity to assist you to position your business to become more resilient to the risks associated with doing business, and consequently support you to achieve your purpose.

Chelsea Smith

Insurance Broker

Crombie Lockwood

(03) 339 5268

Chelsea.smith@crombielockwood.co.nz

Have you ever wondered what happens when you go bankrupt? This article looks at the general process and effect of bankruptcy in New Zealand as well as the effect on a student loan.

The general process and effect of bankruptcy

The process of bankruptcy in New Zealand is set out in the Insolvency Act 2006 (‘the Act’). The Act also provides for an additional formal alternative to bankruptcy, known as the “No Asset Procedure”.

The fact a person is living overseas does not automatically preclude them from being able to be made bankrupt under New Zealand law.

Bankruptcy

There are two ways a person can be adjudicated bankrupt – on the application of a creditor or the debtor can file for adjudication himself or herself.

In terms of the latter, if the combined debts of a debtor amount to $1,000 or more, he or she can apply to be adjudicated bankrupt. There are certain steps which need to be followed which are set out in the Act.

Once the court makes the order of adjudication, the debtor’s bankruptcy commences. It usually lasts three years but normally remains on a person’s credit record for up to 7 years.

The appointed Assignee will advertise the order or adjudication in the Gazette, on the Insolvency and Trustee Service and in the local newspaper.

The general effect of bankruptcy includes:

(a) Once the debtor has been adjudicated bankrupt, most of the bankrupt’s property vests in the Official Assignee, whether in or outside New Zealand, and the bankrupt’s rights in the property are extinguished. The powers that the bankrupt could have exercised in, over, or in respect of any property (whether in or outside New Zealand) for the bankrupt’s own benefit vest in the Assignee. The Official Assignee can therefore seize and sell the bankrupt’s property.

(b) The debtor may retain certain assets, such as tools of trade and necessary household furniture. However, the bankrupt can only retain these assets up to a maximum value. The maximum value for these assets is fixed in the Assignee’s discretion. The bankrupt may also retain a motor vehicle, the value of which must not exceed $6,000. In addition, property held in trust is not affected by the bankruptcy.

(c) The bankrupt must inform the Assignee about his or her property and provide various financial records, including disclosing any property acquired during the bankruptcy, such as a prize or an inheritance.

(d) The assignee can investigate past financial transactions and can retrieve gifts made within a certain timeframe.

(e) Unsecured creditors (secured debt is excluded from bankruptcy) are precluded from continuing to personally pursue the bankrupt for any debt included in the bankruptcy or to add penalties/interest to the debt. All proceedings to recover any debt provable in the bankruptcy are halted.

(f) Unsecured creditors can however prove their claims against the debtor, and the Official Assignee will distribute the bankrupt’s assets among them based on these claims (if there are sufficient funds to do so) in order of a set priority.

(g) The Official Assignee will also decide whether the bankrupt needs to make regular repayments to help repay their creditors.

(h) Creditors that are not based in NZ will be sent a report if they are listed in the bankruptcy. A bankrupt can include that debt in their bankruptcy. A creditor may prove for any debt due to him or her from the bankrupt, no matter whether the debt is governed by New Zealand law or foreign law. A foreigner proving for a foreign debt stands in the same position as a New Zealand creditor proving for a New Zealand debt.

(i) The bankrupt will need the Official Assignee’s permission to, inter alia:

1. take part in the management or control of any business, to be self-employed, or to be employed by a relative or a relative’s business; and

2. travel overseas (the bankrupt can return to New Zealand but if they want to leave again they will need to apply for permission).

(j) The bankrupt also needs to advise the Official Assignee if they change their name, address, employment, terms of employment or income/expenditure.

(k) The public register (of bankruptcies) can be searched from overseas. This may therefore affect a bankrupt’s credit rating outside of NZ.

No assets procedure

To be eligible for the No Asset procedure a person must have debt between $1,000 and $47,000, no realisable assets (excluding cash up to $1000, motor vehicle up to $6000, tools of trade and personal and household effects) and for whatever reason have no way to pay any of their debts.

It has the effect of preventing unsecured creditors from taking steps to enforce debts against the affected person that are included in the procedure. It does not however apply to student loans.

It lasts for 12 months although remains on one’s credit record for longer (it currently remains on the insolvency register for up to 4 years). It does not have as many restrictions as bankruptcy but it does impact one’s credit rating.

The effect of bankruptcy on a student loan

When a person becomes bankrupt, their student loan is written off by the Inland Revenue Department.

This article is not a substitute for legal advice and you should talk to a lawyer about your specific situation. Should you need any assistance, please contact Kris Morrison at Parry Field Lawyers (348-8480) krismorrison@parryfield.com

Restraint of Trade and Conflict of Interest Clauses

Restraint of Trade Clauses

There is a legal assumption that a restraint of trade is unenforceable unless the employer can prove they have a legitimate proprietary interest and that the restraint of trade is reasonable with regard to the circumstances. This typically requires the employer to establish a link between their proprietary interest and the duties and responsibilities of the employee who deals with those interests and the risk of breach. If the employer has proven these two elements, the burden then falls to the employee to show that the restraint is contrary to their personal interest and the general public interest.

The definition of proprietary interest includes three main categories: trade or customer connections, the stability of the employer’s workforce, and trade secrets.

When considering whether a restraint of trade is reasonable, the Court will consider the context of the whole of the agreement between the parties and against the background of the circumstances in which the contract was entered into. In general, a restraint of trade will be reasonable where it grants adequate, but no more than adequate, protection for an employer.

Reasonableness – Duration and Geographical Location

When determining reasonableness, the Court will additionally consider how long the restraint of trade lasts for. When considering the validity of the restraint’s duration, the Court will look at the facts and circumstances of the relevant company’s business, the nature of the interest to be protected, and the potential effect of an ex-employee opening their own business. Industry practice will also be taken into account. In general, the Court will rarely find a restraint of trade clause that lasts for longer than one year to be reasonable.

The geographical coverage of a restraint of trade is also relevant when determining reasonableness. Worldwide restrictions are typically found to be invalid, unless the restriction requires worldwide coverage to be reasonably effectual. The Court has upheld restraint of trade clauses where worldwide coverage was necessary because of the nature of the industry in question and the impracticalities of enforcing a less onerous restraint of trade clause; however, this is the exception, rather than the general rule.

Consideration

If an employee signs an employment agreement containing a restraint of trade provision, it is assumed there is consideration for the restraint of trade as this was part of the bargaining process. Therefore, a restraint of trade included in an employment agreement at the outset will not necessarily be unreasonable.

Restraint of Trade Clauses – Court Powers and Contracting Out of the Court’s Jurisdiction

If a party cannot prove that a restraint of trade clause is enforceable, the Court has a jurisdiction to alter a restraint of trade to make it enforceable or to delete it from the employment agreement. This typically involves reducing the geographical coverage and/or the duration of the restraint. We are unsure whether parties can later agree to alter an invalidated restraint to make it enforceable, as we have not been able to find any case law on this point.

If the Court finds that an employee has breached a valid restraint of trade clause, it may require the ex-employee to pay exemplary and/or compensatory damages. It may also issue an injunction preventing an ex-employee from carrying out the conduct which constitutes a breach of the restraint of trade.

Conflict of Interest Clauses

Case law seems to be silent as to the effect of conflict of interest clauses after the termination of an employment agreement. Therefore, if an employment agreement does not mention the effect of a conflict of interest clause post-employment, there is an argument that the conflict of interest clause no longer applies.

This article is not a substitute for legal advice and you should talk to a lawyer about your specific situation. Should you need any assistance with this, or with any other Employment matters, please contact Hannah Carey – hannahcarey@parryfield.com or any of the team at Parry Field Lawyers should you need assistance – 03348 8480

Relief Against Forfeiture

Under section 261 of the Property Law Act 2007 (“PLA”), where a party has received notice of refusal to renew a lease, they may apply to the Court for relief under section 264 of the PLA. Applications must be made within 3 months of the lessee receiving notice of the refusal to renew the lease.

Section 264 of the PLA allows the Court to make an order which extends or renews the lease. The Court may also require the lessor to enter into a new lease with the lessee. Expenses, damages and compensation may also be awarded by the Court in respect of the above orders.

If the lessor has already leased the premises to someone else, or made a disposition which an order under section 264 would prejudice, the Court may still make an order under section 264; however, it may also choose to cancel or postpone the new estate or interest belonging to the third party, and assess and order damages or compensation. This may be payable by either the lessor or the lessee individually, or by them both jointly.

When considering whether to grant a renewal of the lease, the Court will take 7 factors into account:

Reasons for the failure to give notice – e.g. whether the failure to renew was inadvertent;
Whether the cause of the default was due to any action of the landlord;
The lessee’s conduct, in particular whether it has complied with all conditions/covenants and has been a good tenant;
The prejudice to the lessee if the relief is not granted;
The prejudice to the lessor if the relief is not granted;
The lessor’s motivation for the refusal to renew and understanding of the lessee’s intentions; and
The interests of third parties and how they might be affected by any order.

This article is not a substitute for legal advice and you should talk to a lawyer about your specific situation.

Contact Kris Morrison at krismorrison@parryfield.com

To lease a premises in conjunction with purchasing or starting your own business can be a daunting prospect – often with good reason.

What’s my exposure?

A good starting point for your likely “exposure” is to simply multiply the annual rent and outgoings you are required to pay by the length of your lease as follows:

Assume a five year initial lease term at (say) $50,000 plus GST a year. Add in other property expenses such as rates, insurance and maintenance totaling (say) $8,000 a year, and you get:

$57,500 x 5 years + $8,000 x 5 years = $327,500.00.

This example illustrates that, like buying a house, signing a lease requires care and attention – including asking yourself the basic question: “How am I going to meet these obligations?”

Many tenants also don’t understand that when they sign a seemingly innocuous Agreement to Lease (most commonly in the form published by the Auckland District Law Society (ADLS)) they are usually also agreeing to be bound to the much more fuller terms of the ADLS Deed of Lease – i.e. the terms of the lease are effectively ‘struck’ or finalised as soon as the agreement is signed.

For these reasons, we strongly recommend you consult your lawyer before you sign any lease agreement.

Tips for negotiating a lease

Some particular areas you should turn your mind to when negotiating a lease include:

Check the Plan and Car Parks

Make sure the agreement contains a detailed plan of the premises including any common areas which you will have the right to use. You should be clear as to who else might have access to these common areas, and how that could impact on your use of the premises.
Any plan should also include car parks, and should specify which car parks will relate to your premises (ideally those directly outside your premises).

Final Measurement of Premises

Does the agreement contemplate a final measurement of the premises and if so, does this potentially affect the proposed annual rent?

Lease Schedules

Often the “premises condition report” and “list of landlords fixtures and fittings” schedules are not filled out in the agreement to lease. You should insist these are completed as they may avoid a dispute on expiry of the lease as to what degree of reinstatement of the premises is required, and also “who owns what” in terms of whether fixtures belong to the landlord or the tenant.

Business Use

Make sure the “business use” set out in the lease matches your intended use for the premises, and potentially any different use in the future – the relevance is that if the intended business use is not covered, you will need to approach the landlord for consent to change this.
In addition, make sure that your business use is permitted under the relevant City/District Council Plan (you may require specialist advice to determine this). If not permitted “as of right”, you might need a resource consent to carry out your proposed business activity.
You will also need to make your own determination as to whether the current state of the premises are fit for your particular use. If there is to be a change in the building’s use after you move in, its possible the premises require upgrading – which could come at a substantial cost (and usually a big surprise). An example might be changing from a retail shop to a restaurant/cafe – the latter will likely require (at a minimum) disabled toilets – and any upgrade will be the tenant’s, not the landlord’s, responsibility under the lease terms.

Don’t forget outgoings

Make sure you check the estimated annual outgoings for the premises. Since the Canterbury earthquakes, premiums for commercial buildings have increased significantly and the tenant is expected to bear these in full. In addition, be clear on what the excess under the landlord’s building insurance policy is. Some leases will limit the tenant’s contribution to $2,000, but others make the tenant liable for the full amount of the landlord’s excess. For older buildings, this is often expressed as a percentage of the overall building value, and can be extraordinarily high.
Be aware as well that in addition to funding the landlord’s insurances, you will separately need to insure your own business assets and risk.

Repairs and Maintenance

You should read the maintenance provisions of the deed of lease carefully, as tenants are often surprised to learn they are liable for most repairs, unless they are structural or due to a defect in design or construction of the building.

“Make Good” at Lease End

Make sure you are aware as to what reinstatement obligations you have at the end of the lease. The standard ADLS provisions provide that tenants can remove additions/alterations they have made on the basis that they “make good” any damage to the premises in removing them. Even if you don’t want to remove them, the landlord can still require you to remove such items.
It is helpful to try and anticipate at the outset of the lease what a sensible position on termination would be – for instance, it is often better to negotiate that your fit out will vest in the landlord without compensation at lease end, so that you are not later required to remove it (because the value of the fit out at the end of the lease will often be less than the cost to remove it/reinstate the premises).

Guarantees

You might be able to renegotiate the terms of any guarantee – for example, if your spouse or partner is named as a guarantor but doesn’t work in the business, you could argue he or she should be excluded from the guarantee.

In addition to these matters, your lawyer will be able to take you through the standard terms of the ADLS Deed of Lease and fully explain your rights and obligations including rent reviews, assigning your lease and damage to the premises, as well as what happens if you are unable to pay the rent.

This article is not a substitute for legal advice and you should talk to a lawyer about your specific situation. Please contact Tim Rankin at Parry Field Lawyers (348-8480) timrankin@parryfield.com