Property - Parry Field Lawyers

The ADLS (Auckland District Law Society) Deed of Lease is the document most commonly utilised for commercial tenancies. An updated version (6th edition) has recently been released.

The updated lease contains a number of key changes which, if left unamended, could prove problematic for landlords and/or tenants. We summarise some of those changes/issues below.

We always recommend that, before you sign a new Agreement to Lease, you forward it to us for our review – as once signed, it sets the terms of the Lease in stone, potentially having significant consequences down the track.

Insurance

The Lease now makes it clear that the tenant is responsible for meeting (part of) the insurance excess in respect of a claim – increased to a maximum of $2,000 (previously $500). The parties can of course negotiate a different excess amount, and some landlord will require tenants to meet the whole of their excess, which can be significant, particularly for earthquake damage.

It is important that Landlords ensure they can meet the insurance obligations set out in the lease and, if not, make specific changes to the documents which reflect the true insurance position. While the lease does provide that the Landlord will not be in breach if insurance cover becomes unavailable (other than because of the Landlord’s act or omission) the Landlord must still use all reasonable endeavours on an on-going basis to obtain cover. There are also additional obligations to advise the Tenant when cover becomes unavailable and to give reasons, as well as provide the Tenant with reasonable information relating to the cover on request.

The types of “optional” insurances that the Landlord may insure against – loss of rent, loss to fixtures and fittings and public liability – have been moved to the First Schedule and, if not specifically deleted, mean a landlord may be obliged to effect insurance that they do not have in place.

Landlords should also be aware that, as a result of the Canterbury earthquakes:

they may be unable to obtain certain types of insurance (eg full replacement cover);
the annual insurance premiums are likely to have increased significantly; and
they may be liable for an excess much higher than the $2,000 set out in the lease.

This reiterates the need for even the Agreement to Lease to accurately reflect the landlord’s specific circumstances.

Lack of Access in an Emergency

New provisions have been included in an attempt to address situations such as the “red zone” in Christchurch where the leased premises were either not damaged or only partly damaged but could not be accessed by the tenant and the lease remained on foot.

In such cases, there is now to be an abatement (reduction) of a fair proportion of rent and outgoings where the tenant is unable to gain access to fully conduct its business because of reasons of safety of the public or the need to prevent any hazard, harm or loss that may be connected with the emergency. These provisions only apply however if the lease has not been cancelled as a result of the premises being totally or substantially destroyed.

The new provisions specifically include as reasons of safety/need to prevent harm:

a restricted access cordon;
prohibition of the use of the premises pending completion of structural engineering or other reports; and
a restriction on occupation of the premises imposed by any competent authority.

In these situations, the lease also now provides that either the landlord or tenant may cancel the lease if access cannot be gained for a period specified in the lease (the default period being nine months) or if the party cancelling can at any time prior to cancellation establish with reasonable certainty that the tenant will be unable to gain access to the premises for that period.

Landlords need to consider their insurance position if rent is abated in circumstances where there is no damage to the premises – i.e. can they in fact cover this risk when most loss of rental policies only respond to actual damage to the premises?

Legal Costs

Previously the tenant was liable to pay the landlord’s costs for the preparation of the lease and any variation or renewal of it. Now each party is to meet their own costs unless the lease specifies otherwise.

The landlord’s costs of providing consent and legal costs relating to enforcement are still chargeable.

Rent reviews

If no rent review date is specified in the lease (again, including the Agreement to Lease), the default position is now that there are no reviews. Previously, the default position had provided for a rent review on each renewal date. There is also no default review upon a lease renewal – again, a review on that date will need to be specified.

In addition, the lease now provides for a choice between market rent review or CPI rent review (or a combination of both throughout the lease term). Both forms of rent review will operate as “ratchets”, even if a CPI rent review follows a market review.

Premises Condition Report

A Fifth Schedule has been attached being a Premises Condition Report which, if completed, provides evidence of the condition of the premises at the commencement date of the lease. The intention is to avoid disputes as to the condition of the premises at the end of the lease.

Outgoings

Clause 16 of the First Schedule provides for an estimate of the Outgoings as at the Commencement Date. This may not always be easy to ascertain with any degree of certainty and it may be prudent to consider deleting this part.

Maintenance and Improvements

The re-decoration clauses in the lease now clarify that replacement items (eg floor coverings) are to be to a same or better quality, specification and appearance as before.

The landlord also now has an express obligation to keep the building weather-proof.

The 6th edition makes it clear that the landlord is responsible for the maintenance and replacement of “building services” – which are those services provided by the landlord as an integral part of the building – e.g. water, gas, electricity, lighting, air conditioning, heating, lifts and escalators etc. The cost of replacing these are not recoverable by the landlord as an outgoing – the rationale being that this is consistent with the expectations of a tenant who pays rent for premises with a level of services enabling that tenant to use the premises for it’s specified business use.

Make good/reinstatement must now occur by the end the lease term – not within a reasonable time thereafter, as had previously been the case.

If the landlord requires access to the premises to comply with the requirements of any statute or regulation (such as bringing a building up to building code) then the tenant must grant such access, but an abatement (reduction) of a fair proportion of rent and outgoings will apply if the tenant’s use of the premises is “materially disrupted”. The landlord can require the tenant to vacate the premises altogether while repairs are being carried out.

There is also a good faith requirement on the part of the landlord, supposedly to ensure that there is reasonable co-operation with the tenant in terms of timing and extent of work. Particularly where upgrades to meet the Building Code are involved, timing may be very important – e.g. avoiding the Christmas season for retailers.

The improvements rent percentage has been deleted, partly out of fear that landlords may try to inappropriately pass expensive building strengthening costs onto tenants under the clause. This does not, of course, stop the parties themselves specifying what terms should apply if building strengthening/improvements are in fact contemplated during the term of the lease.

Related to the above, clause 13 of the Outgoings Schedule now specifies that the costs of upgrading the building to comply with the Building Act 2004 are not an outgoing recoverable from the tenant.

Counterpart clause

A counter part clause is now included which means that, in essence, the Lease can be signed concurrently by the Landlord and the Tenant in their respective lawyers’ offices.

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

In Part I of our series on EQC and Land Damage Settlements, we looked at what the EQC Act provides in general in respect of “land damage” and what it is. In this Part we examine what EQC’s obligations/rights are under the Act in respect of settling land claims. Read more

In April 2013, EQC released two guides for settlement of earthquake land claims (flat land and hill properties), together with sample Land Settlement Packs. The Guides note that they are a summary of EQC’s obligations and that the provisions of the EQC Act 1993 will be “applied by EQC at all times.”

This article looks at what cover the EQC Act actually provides for “land damage” and what qualifies as “land damage”. In Part II to come, we will look at what are EQC’s obligations/rights in respect of settling land claims.

1. What general cover is provided under the EQC Act for earthquake related land damage?

2. Is EQC responsible for covering all areas of a property where there is land damage?

3. What level of “insurance” cover does EQC provide for land damage?

4. What qualifies as “physical loss or damage”?

5. What types of “physical loss or damage” does EQC cover?

1. What general cover is provided under the EQC Act for earthquake related land damage?

The EQC Act provides that, where a home is insured against “natural disaster damage”, the land on which the home is situated is insured against:

any “physical loss or damage” to the land occurring as a direct result of a natural disaster (such as an earthquake); and
Any “physical loss or damage” to the land occurring as a direct result of measures taken under property authority to avoid the spreading of, or otherwise reduce the consequences of, any natural disaster (e.g. land works necessary to redirect flood run-off).

2. Is EQC responsible for covering all areas of a property where there is land damage?

No, EQC only covers damage to the following areas of land:

a) the land under the house;

b) all land within 8m (extending outwards) of the house or outbuildings such as any garage (but excluding artificial surfaces such as asphalt or concrete);

c) the main access way to the house (excluding coverings such as asphalt or concrete) from the boundary of the land (so long as that access way is situated within 60m of the house);

d) the land supporting the main access way;

e) bridges and culverts situated within the above areas; and

f) retaining walls and their support systems within 60m of the house which are necessary for the support or protection of certain specified areas of land (e.g. the house or garage).

EQC does not cover certain things that are on the land, such as trees, plants, lawn, paving and driveways.

3. What level of “insurance” cover does EQC provide for land damage?

Qualifying properties are insured for an amount equal to the lowest of the value of:

a) a parcel of land that is the minimum lot size under your district plan.

i. In Christchurch, if your property is zoned as Living Zone 1, the minimum lot size is 450m2.

ii. If your property is in Christchurch’s Living Zone 2, the minimum lot size is 330m2.

b) An area of land of 4000 m2; or

c) The area of land that is actually physically lost or damaged.

These values are the maximum amounts EQC could be liable to pay, rather than what you will automatically receive from EQC.

In the case of bridges and culvert and retaining walls, EQC is only liable to pay up to the “indemnity value”of that property (e.g. this is often described as the property’s “market value” at the date of the loss or the property’s value allowing for its age and condition immediately before the loss or damage happened).

EQC advises that payment of claims for land (where EQC considers its maximum liability has been reached) will be based on a professional valuation.

In each case, EQC’s excess is deducted off each land claim (if the claim is $5,000 or less, EQC will deduct an excess of $500. If the claim is more than $5,000, EQC will deduct 10% of the claim up to a maximum of $5,000 per claim).

4. What qualifies as “physical loss or damage” in the context of “natural disaster damage”?

This is not defined in the EQC Act.

In the case of Earthquake Commission v Insurance Council of New Zealand Incorporated & Orrs [2014] NZHC 3138, the Court held that, for land damage to qualify as “natural disaster damage” for the purposes of the EQC Act, there must be:

a physical change or loss to the land that has occurred or is imminent as a direct result of the earthquake. Put another way, some type of disturbance or loss to the physical integrity of the land; and
which adversely affects the uses or amenities that could otherwise be associated with the land (i.e. building on it/habitating on it).

5. What types of “physical loss or damage” does EQC cover?

This is again not specified in the Act. EQC has however identified nine types of land damage on the flat residential land in Canterbury. Seven are said to be apparent from looking at the land:

Cracking caused by the sideways movement of land, often towards water;
Cracking caused by backwards and forwards ground movement;
Undulating land (e.g. uneven settlement of the land, often as a result of sand and silt being pushed up or settlement of liquefied soils below the ground);
Ponding (due to lowering of the land in areas which results in water “ponding” in places where previously it did not);
Localised settlement resulting in drainage issues (e.g. drains flowing the wrong way due to land settlement;
Groundwater springs (new springs flowing over the ground where previously they did not); and
Pushed up sand and silt, either under a house or over a large area.

Two further types are not necessarily visible but have increased the future vulnerability of the land to liquefaction or flooding:

increased liquefaction risk (the ground surface has subsided closer to the water table than previously, reducing the ground crust thickness and therefore increasing the risk of liquefaction occurring); and
increased flooding vulnerability (the ground surface has again subsided making it more at risk of flooding if the land is situated near a water way).

In the case of Earthquake Commission v Insurance Council of New Zealand (referred to above) however the Court held that “circumstances where one or more earthquakes have caused physical changes to the land only and such changes have caused the residential building to reduce in height and adversely affected the uses and amenities that could otherwise be associated with the residential building by increasing its vulnerability to flooding events does not include “Natural disaster damage” (emphasis ours).

EQC advises that it assesses Increased RIsk of Flood/Liquefaction utilising drilling data, aerial laser levels taken after each major earthquake/aftershock which record changes in land elevation, and Water Table Levels.

In the Port Hills, EQC has identified other types of damage such as:

- Debris material (e.g. rock fall and cliff collapse) being deposited on the land where this materially affects the physical use of the land;
- Land cracking/bulging/undulations and loss of land as a result of land moving vertically and/or horizontally downslope where the land no longer occupies the space it did before the earthquakes, where this materially affects the physical use of the land.
- Land damage as a result of impacts from rock fall and cliff collapse.

This post provides a general outline of what the EQC Act provides for “land damage” and what qualifies as“land damage”. In Part II to come, we will look at what are EQC’s obligations/rights in respect of settling land claims.

If we can assist in any way with your land claim, please don’t hesitate to contact Paul Cowey at paulcowey@parryfield.com.

Disclaimer: the content of this article is general in nature and not intended as a substitute for specific professional advice on any matter and should not be relied upon for that purpose.

If you are married, or in a civil union or de facto relationship, New Zealand’s Property (Relationships) Act 1976 will have an impact on what happens to your property in the event of separation or death.

The Act makes provision, however, for you and your spouse to specifically agree on what is to happen to your property by entering into a contracting out agreement.

Who can enter into an agreement?

Section 21 of the Property (Relationships) Act 1976 provides that a husband and wife, civil union partners, de facto partners, or two persons in contemplation of entering into a marriage, civil union or de facto relationship may contract out of the provisions of the Act.

Why enter into an agreement?

There are numerous reasons for electing to contract out of the Act. Usually, it is to avoid the presumption of equal sharing of property that arises when the relationship ends. However, an agreement may also assist with asset, estate or tax planning. It may be a desire by one or both parties to preserve all of the property owned or acquired by them prior to the commencement of the relationship as his or her own separate property. Where one partner has children from a previous relationship, there may be a dersire to ensure that those children are adequately provided for from their property. Alternatively, the parties may simply wish to record their decision to treat certain property differently.

What can be included in the agreement?

Section 21D of the Act sets out what can be included in an agreement. An agreement can:

declare property to be separate or relationship property;
define the share each party to the agreement has in any part or all of the relationship property;
define shares on death;
provide for the calculation of the shares; and
prescribe the method by which the relationship property is to be divided.

Section 21 of the Act permits parties to an agreement to make any arrangements they think fit with respect to their property, including property acquired in the future by one or both parties.

“Property” is specifically defined in section 2 of the Act and includes the following:

real property (i.e. land);
personal property;
any estate or interest in any real property or personal property;
a debt; and
any other right or interest.

How is the agreement made valid?

Section 21F of the Act records an agreement will be void unless it complies with certain requirements. Those include the following:

The agreement must be in writing and signed by both parties.
Each party to the agreement must have independent legal advice before signing the agreement.
The signature of each party to the agreement must be witnessed by a lawyer.
The lawyer who witnesses the signature of a party must certify that, before that party signed the agreement, the lawyer explained to that party the effect and implications of the agreement.

Future Considerations

It is important to recognise that an agreement contracting out of the provisions of the Act needs to be revisited on a regular basis. It is impossible when drafting an agreement to anticipate every eventuality just as it is impossible to foresee, at the outset, the longevity of a relationship.

The information contained in this outline is of a general nature, should only be used as a guide and does not amount to legal advice. It should not be used or relied upon as a substitute for detailed advice or as a basis for formulating decisions. Special considerations apply to individual fact situations. Before acting, clients should consult their Parry Field Lawyer.

Do you and your married spouse own and live in your home? Are either of you self-employed or involved in some occupation that involves personal exposure to financial risks(e.g. personal guarantees)? If you answer ‘yes’ to both these questions you should seriously consider registering your home under the Joint Family Homes Act 1964. It could prove to be very cheap protection against losing equity in your home in the event of being sued or bankrupted.

What is a Joint Family Home?

Most people think their home is registered as a joint family home because both their names are on the title. This is WRONG! It requires a special application to Land Information New Zealand for your home to be registered as a Joint Family Home (“JFH”) under New Zealand’s Joint Family Home Act 1964.

The cost is between $500.00 – $1,000.00 plus GST. Costs vary depending on whether or not you wish to publicly advertise the application. The advantage of advertising is that the protection takes effect within six months rather than the standard two years after application. Also your bank may charge a small fee if you have a mortgage.

What is the Protection?

You will not be protected against secured creditors e.g. your mortgagee, but part of your property will be protected against unsecured creditors; e.g. trade creditors to your business, if it is not a company.

Essentially the Joint Family Home Act 1964 creates a protected fund of $103,000 which is safe from unsecured creditors. This fund is to assist in the purchase of a replacement home unless unsecured creditors convince the High Court of New Zealand to exercise its discretion and agree to the sale of the home. (In practice creditors are reluctant to apply to the Courts because of high cost, and the reason that a judge has to balance the general desirability of preserving the matrimonial home for the family on the one hand against the just claims of creditors on the other.)

The Court cannot order the sale of a JFH home if there is less than $103,000 equity in the home. A mortgagee, however, can sell the home (in the event of default) no matter what equity the owners have. The protection is all the more worthwhile if the matrimonial home has previously only been registered in the name of one spouse.

Summary

For quick protection against creditors, some lawyers think a JFH application is more secure than selling the property to a family trust and dealing with the debt back. While this is debatable, especially at higher levels of equity, it is certainly more affordable. Protection, however, can be lost if it is found at the time of application that the parties were unable to pay all their debts (other than those charged against the house) without recourse to the house sale proceeds.

One way to view the application is as a type of insurance. The insurance is cheap and involves a once only payment which is good for as long as you own the house. It is a simple procedure and the loss is small even if, at the end of the day, protection is not achieved.

Also for a small fee the registration can be transferred to your next home, and registration does not preclude transferring ownership to a family trust later on.

There are a couple of catches : a) you must be legally married to apply for a JFH, and b) if you die, the property automatically goes to the surviving spouse regardless of what your Will says!

As there are other criteria to satisfy, you should contact your Parry Field Lawyer to see if there are advantages for you in registering your home as a Joint Family Home.

The information contained in this outline is of a general nature, should only be used as a guide and does not amount to legal advice. It should not be used or relied upon as a substitute for detailed advice or as a basis for formulating decisions. Special considerations apply to individual fact situations. Before acting, clients should consult their Parry Field Lawyer

Section 15 of New Zealand’s Property Relationships Act 1976 was introduced to address issues of inequality between partners following a breakdown of their relationship. The section empowers the Court, following a division of relationship property, to compensate a spouse/partner if his or her living standards and income will be significantly less than the other party because of the division of functions in the relationship.

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When purchasing a property, it pays to investigate the history of the buildings on the land. If there are no records of building consents having been issued by the council, then at best the buildings may have been constructed without council approval and may not comply with the building code. At worst, they may be dangerous for use and occupation.

Background To The Building Consent Process

The Building Act 2004 (“the Act”) governs all building works in New Zealand. It states that such work must comply with the building code. The code is made up of regulations which prescribe the functional requirements for buildings and the performance criteria they must meet for their intended use.

Before undertaking building work, the owner of the property must obtain approval from a building consent authority. Usually, the building consent authority is the local council. Council approval for building work is known as a “building consent”.

During construction and once construction is complete, the council will inspect the work to ensure compliance with the conditions of the building consent and the building code. If the council approves the work, then it issues a code compliance certificate. It is an offence to carry out any work requiring a building consent if the work is not in accordance with the terms of the building consent. Also, subject to some exceptions, until such time as a code compliance certificate has been issued, it is an offence to occupy the building.

What Happens When Building Work Has Been Done Without A Building Consent?

Building consents cannot be issued retrospectively. However, if the work has been completed and a building consent was required but not obtained, then an application to the council for a “certificate of acceptance” may be made. This involves the council inspecting the work to determine if it complies with the building code. If it does, then it may issue a certificate of acceptance. However, such a certificate cannot be issued if the building work was carried out prior to 1992 as the building code was not in existence prior to that date.

It is not uncommon to come across properties where the buildings on the land have been constructed with a building permit or consent but the work has either never been completed, or if it has, the council has not approved it. If the work was carried out prior to 1 January 1993 and provided that the building is not “dangerous” or “unsanitary” as defined in the Act, then the council cannot take any action to require the owner to complete the work in accordance with the original building permit.

Make Sure Your Contract is Conditional on Approval of a LIM Report

The best way to check that there are no unauthorised buildings on a property is to obtain a Land Information Memorandum (known as a “LIM report”) before you buy it. This includes a summary of all records held by the council in relation to the property including details of building permits, consents, code compliance certificates and certificates of acceptance. To protect your position, any sale and purchase agreement you sign should be subject to approval of a LIM report for the property.

It is worth remembering that although the absence of permits or consents may not pose a problem while you live in the property, it may well become a problem once you decide to sell it. For that reason, a LIM report is money well spent. It could save you a great deal more at a later date.

The information contained in this outline is of a general nature, should only be used as a guide and does not amount to legal advice. It should not be used or relied upon as a substitute for detailed advice or as a basis for formulating decisions. Special considerations apply to individual fact situations. Before acting, clients should consult their Parry Field Lawyer.

Most of us are used to living in an environment where there is a certain amount of noise. However, there are also times when noise can become excessive and interfere with the peace, comfort and convenience of other people.

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New Zealand’s Building Act 2004 (“Act”) impacts on vendors selling properties on which building work has been undertaken. Purchasers now often request evidence of compliance with the Act. Parry Field Lawyers provide legal advice on a range of property matters including buying and selling property.

Building Code

One of the fundamental principles of the Act is that all building works must comply with the building code. Compliance with the building code is mandatory regardless of whether or not a building consent is required for the work. Even for minor building projects, householders need to check whether or not the building code is relevant and if it is, must ensure that the building work complies with the requirements of the code.

Evidence of Compliance

The most common way a building owner may provide evidence that work complies with the building code is by obtaining and being able to provide the purchaser with a Code Compliance Certificate (“CCC”). A CCC is issued where a building consent is applied for before building work is commenced. The CCC effectively provides that the consent authority is satisfied on reasonable grounds that the building work complies with the building consent. It is the building consent that is crucial in ensuring that the performance standards set out in the building code are met by the finished building product.

A building consent will lapse if work does not commence within 12 months of the date of issue. However, it appears that commencement of work within the first 12 months after the building consent is issued preserves the consent indefinitely.

Certificate of Acceptance

Sometimes a purchaser will ascertain that building work for which a building consent and CCC should have been issued, has not been completed in accordance with those requirements. The Act provides that in that situation a building consent authority can issue a certificate of acceptance.

A certificate of acceptance certifies, to the best of the building consent authority’s knowledge and on reasonable grounds, that, as far as it could ascertain, the building work complies with the building code.

Obviously this certificate conveys a far lower degree of quality assurance than a building consent or CCC. It replaces what was previously referred to as a “safe and sanitary” letter which followed an inspection by the Council certifying to the effect that the building was deemed to be neither unsafe nor unsanitary.

Building Warrant of Fitness

Another matter which may require consideration when purchasing a commercial building is whether or not a building warrant of fitness is required and is up to date. If a building contains systems or services that require ongoing maintenance in order to function at the level demanded by the building code, a compliance schedule must be established in regard to those systems to ensure that maintenance is routinely carried out. The compliance schedule sets out the inspection, maintenance and reporting procedures required to ensure that those systems meet performance standards. The building warrant of fitness confirms that the inspection, maintenance and reporting procedures set out in the schedule have been complied with for the foregoing 12 months. Accordingly, building owners bear responsibility for engaging an independent qualified person (IQP) to carry out an inspection and must display a copy of the building warrant of fitness in a public area of the respective building. There are significant fines for a building owner who fails to obtain a compliance schedule or to display a current building warrant of fitness.

The information contained in this outline is of a general nature, should only be used as a guide and does not amount to legal advice. It should not be used or relied upon as a substitute for detailed advice or as a basis for formulating decisions. Special considerations apply to individual fact situations. Before acting, clients should consult their Parry Field Lawyer.

If you have any concerns that you may have a leaky home, it’s important that you act quickly to investigate your concerns. Parry Field Lawyers provide legal advice on a range of property matters including leaky home claims.

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Insurance

Lack of Access in an Emergency

Legal Costs

Rent reviews

Premises Condition Report

Outgoings

Maintenance and Improvements

Counterpart clause

Who can enter into an agreement?

Why enter into an agreement?

What can be included in the agreement?

How is the agreement made valid?

Future Considerations

What is a Joint Family Home?

What is the Protection?

Summary

Background To The Building Consent Process

What Happens When Building Work Has Been Done Without A Building Consent?

Make Sure Your Contract is Conditional on Approval of a LIM Report

Building Code

Evidence of Compliance

Certificate of Acceptance

Building Warrant of Fitness

Christchurch CBD

Christchurch – Riccarton

Rolleston

Hokitika

Auckland