leases Flashcards
what is a lease
- an estate in land which may exist at law or in equity
when does a lease arise
when one party (lessor/landlord), confers on another party (lessee/tenant):
- the right to exclusive possession of certain land (distinguishing it from a licence)
- for a period which is subject to a definite limit, or which can be made subject to a definite limit by either party
what is the duality of character of leases
both an executory contract - things have to continue to occur throughout the lease (the contractual terms and conditions that the lease agreement sets out)
and an executed demise - grant of an interest in land is completed at the moment the lease is finalised
what are the contractual aspects of leases
in recent years, there has been a “contractualisation” of leases, with a tendency by courts to explore contract law as a source of alternative remedies and as a basis of implied terms. where the lease is written, the court will apply the usual rules for the construction of contracts
what are the legal basis’ for leases
primary basis of NZ law relating to leases = common law.
several relevant statutory interventions:
- residential tenancies act 1986
- property law act 2007 (part 4) - applies to all other leases
how to leases for maori land work
under the te ture whenua maori act 1993, maori customary and freehold land is inalienable; except:
- for dispositions (including leases) effected by order of the maori land court
- for leases of a term of not more than 3 years (including any term(s) of renewal
- every title and interest in maori customary land must be determined according to tikanga maori
what are the 4 essentials of a lease
- fixed/periodic term
- certain premises
- exclusive possession
- proper creation
what is the ‘fixed and period term’ requirement of a lease
a lease must have a time of commencement and time of ended. it must be express, implicit or capable of being rendered certain from the outset of the term. it may be granted for a term that ensures regular but non-consecutive periods of enjoyment (e.g. like leasing a timeshare every July).
periodic leases satisfy the certainty of term requirement because inherent in the nature of a periodic lease is the power of each party to determine the lease at the end of any period by giving appropriate notice (Prudential Assurance Co Ltd v London Residuary Body).
Where the future termination date is uncertain, but rather termination is based on the occurence of a future event, PLA 2007 s 212 provides for the creation of an equitable lease. the future event must be sufficiently defined in the lease so that the event can be identified when it occurs. if the future event has not occured before the 10th anniversary of the date the lease began, the lease automatically terminates on the 10th anniversary. E.g. if the lease for a quarry provides the lease will run until 500 tonnes of ore have been extracted, there could be an equitable lease created
what is the certain premises essential of a lease
the subject matter of a lease must be described and identified with certainty. it is generally not difficult to meet this requirement
what happened in Goldsworthy Minding Ltd v Commissioner of Taxation in relation to the certain premises essential of a lease
there was a lease to dredge a harbour to facilitate the transportation of iron ore. there was question as to whether the description of the sea bed in the agreement was sufficiently certain to support a lease because the seabed will change overtime in natural state as well as dredging changing boundaries. the court held that wasn’t a problem as long as you could tell it at a given time - “no reason the law should not recognise a boundary capable of moving, so long as it was capable of ascertainment at any point in time”
what is the exclusive possession essential of a lease
legal right of exclusive possession is distinct from mere factual occupation and is the essential distinction between a lease and a licence. a lessee may exclude everyone, including the landlord (subject to the reservation of a limited right of entry by the landlord) and you can bring tort claims in trespass or nuisance for third parties coming onto the property.
the legal right to exclusive possession implies freedom of the lessee from any detailed supervisory control in respect of the use and occupation of the premises.
the NZ approach is that the parties’ subjective intention, or the label they have attached to the arrangement, is not decisive. the agreement must be construed as a whole and in context to determine whether the legal right of exclusive possession has been granted
what is the proper creation essential of a lease
there is no restriction on the length of term of a lease which may be registered. however, where the fixed term of a lease exceeds one year, legal estate will not pass until a lease instrument in the appropriate form has been registered.
until PLA 2007, only short term leases (less than one year) do not require registration - they can be made orally or in writing and amount to a legal interest in land.
however, it is not mandatory to register a lease even if it exceeds one year, and in practice many go unregistered. an unregistered lease instrument for a fixed term of over one year has the effect of a deed, making an equitable lease. The Doctrine of Walsh v Londsale will apply, specific performance will be available and parties’ rights and liabilities will be determined according to the terms of the memorandum.
why is mortgagee consent required for proper creation of a lease
most mortgages contain a term that no lease or sublease should be granted without first obtaining the mortgagee’s consent. if consent is not obtained, the mortgagee is formally entitled to treat the grant as a default and require payment of the loan. under LTA 2017, lease is not valid and binding against mortgagee or charge unless they have consented to the lease before registration (s 91). consent requires a positive affirmative act, such as written or oral acceptance, or implied acceptance by conduct (New Zealand Fisheries Ltd v Napier City Council)
what are the 7 types of leases
- fixed term
- perpetual leases
- express periodic tenancies
- implied tenancies and leases (s 210 leases)
- tenancy at will
- tenancy at sufferance
- lease for life
what is a fixed term lease
- granted for any length of time, whether long or short, continuous or discontinuous
- specified end date for the lease
- PLA s 212 equitable leases can be determined based on the occurence of a future event so are also fixed term leases
what is a ‘perpetual’ lease
- not recognised at common law, would result in a tenancy at will or the grant of a fee simple subject to the payment of an annual rent charge in perpetuity
- phrase is often inaccurately used to refer to perpetually renewable leases, which are for a fixed period and then perpetually renewable for the same period - Glasgow leases are usually for perpetually renewable periods of 14 or 21 years
- pastoral leases of Crown land granted under Land Act 1948
what is an express periodic tenancy
- grant for a period e.g. week, month, year that will continue to renew itself until either party terminates the lease by giving notice to quit
- apparent exception to the common law requirement that the maximum duration of a lease must be certain at its beginning
- right of each party to give notice is inherent
- like a Glasgow perpetually renewable lease except the period is much shorter than 14 or 21 years
- common in residential situations
- most fall under ‘short term lease’ - can be created orally or in writing, without needing to be registered under LTA 2017 for the legal estate to pass
- may be assigned
- will not determine on the death of the tenant - it vests in the executors/administrators of the deceased tenant until terminated - not a personal interest
what is a s 210 implies tenancy or lease
applies where:
- lessee is in possession of the land, but there is no agreement (express or implied) as to duration of the term
- lessee remains in possession of the land with lessor’s consent, although term of the lease has expired
- terminable at will by either party, by 20 working days’ written notice
- not estates in land and not registrable under LTA 2017
- can arise at termination of a fixed term lease e.g. where the lessee remains in possession of the property with the consent of the lessor even though the term has expired or the lessee is in possession but not agreement as to the term
what is a tenancy at will
- created by express or implied agreement
- confers exclusive possession on occupier for indefinite period
- period may be terminated at any time, at will of either party. No notice to quit is necessary to determine
- has the characteristics of both licences and periodic tenancies - the tenant at will has no estate in the land and cannot assign their interest, but they do have an exclusive right of occupation and can maintain an action of trespass against a third party (unlike a licensee)
what is an express tenancy at will
- unusual
- may arise in the “holding over” situation if the parties have agreed that this kind of arrangement should be recognised
- not a short-term lease under PLA 2007
- it would be more common to recognise an express periodic tenancy if there is any kind of express recognition rather than this
what is an implied tenancy at will
examples (non-exhaustive):
- prospective purchaser is let into possession before completion of the land transfer
- prospective tenant is allowed into occupation while negotiations for a lease are still continuing
- tenant holds over after expiry of a fixed term and before rent has been paid on a basis from which a periodic or s 210 lease can be implied
what is a tenancy at sufferance
- can only arise by operation of law
- cannot be expressly created by the parties
- no tenure between the parties
- lawful occupation of the land in particular circumstances
- results where a tenant holds over at the expiry of a fixed term without the consent or dissent of the landlord - absence of consent distinguishes tenancy at sufferance from tenancy at will and absence of dissent prevents tenant at sufferance from being a trespasser (clear toleration)
- tenant at sufferance may maintain an action of trespass against a third party and may recover possession
- tenant may leave at any time without notice
- landlord may bring action for use and occupation, and may eject tenant at any time
what is a lease for life
- under PLA 2007, in NZ it is possible to create a lease for life without needing to specify a maximum fixed term of years, and without it being a freehold estate (s 61)
- often used in conjunction with family trusts - owner sells house to a family trust for current market value, subject to a lease for life. This reduces the value of an individual’s estate, maximising their entitlement to asset-tested benefits and subsidies, while also avoiding gift duty
- also common in retirement villages
what are the 2 main rights and obligations under a lease
- quiet enjoyment
2. principle of non-derogation from grant
what does quiet enjoyment as a right and obligation of a lease entail?
- covenant that secures the lessee against interruption by any means in the possession of the property leased
- broken if acts of the landlord (or person claiming under or acting through landlord) interferes physically and substantially with the tenant’s possession. the landlord may be in breach even if the act complained of is legal, on the landlord’s own property, and arguably reasonably necessary (Owen v Gadd)
- implied at common law, codified in PLA 2007 s 218
- enjoyment refers to the exercise and use of the right and having the full benefit of it, rather than to derive pleasure from it (Kenny v Preen)
- not absolute, but in recent years courts have expanded the covenant for quiet enjoyment to protect against a third party’s activities (Norden v Blueport Enterprises Ltd)
- there is considerable overlap between the covenant for quiet enjoyment and the principle of non-derogation from grant
what happened in Norden v Blueport Enterprises Ltd
- landlord leased upstairs floor of an office building to an escort agency who was running a brothel with a software company underneath
- the brothel affecting the software companies’ business
- landlord argued they weren’t responsible for the activities of the co-tenant and that there would be a nuisance claim against that tenant
- court held the landlord had authorised, consented or allowed offending activities to proceed so they were liable
what are the remedies for the breach of quiet enjoyment
- injunction (to stop the interference)
- damages (including damages for mental upset and distress)
- exemplary damages may be available if the tort of trespass has also been committed
what is the right to non-derogation from Grant
“The general rule is that a lessor must not voluntarily prejudice the rights which he has created and he will not be permitted to do anything which is inconsistent with the purpose for which the demised premises are let.”
- acts in derogation from the grant are acts of the lessor which prejudice the successful fulfilment of the purpose of the lease
what happened in Mt Cook National Park Board v Mt Cook Motels Ltd
the national park board was the lessor of the land also the government authority charged with granting licences to operate businesses within the national park. One such business was the motel and the parties negotiated a lease contingent on motels obtaining a licence to operate within the park. the initial fee for the licence was £10 per annum but increased in a short amount of time to $700 per year. this frustrated the purpose of the lease in their capacity as lessor - derogation from grant
does non-derogation from grant impose an absolute obligation
- no general principle or implied contractual term that the premises are suitable for the purposes for which they have been let, or that they can be lawfully used for the lessee’s purpose
what are some examples of non-derogation from grant
- obstruction of air to timber drying sheds
- where construction of building close to a premises used to store explosives would endanger the requisite statutory licence
- nuisance, where the leased premises were being used as a brothel
- attempt to subsequently “redefine” permitted use of premises in lease
- dispute over naming rights of the Majestic Centre in Wellington
what are the inherent obligations of the lessee
- obligation to pay rent - implied at common law, codified in PLA 2007
- obligation to use premises in a “tenant like manner”
- obligation to yield up possession - implied at common law, codified in PLA 2007, lessee must deliver up vacant possession (them and their things) to the lessor when the term expires or the tenancy is determined
- obligation not to commit waste - implied at common law, codified in PLA 2007 - waste is a tort - 2 principal classes at common law: voluntary waste (positive acts), permissive waste (omissions)
what are the obligations of the lessor and of the lessee
lessor - quiet enjoyment, non-derogation
lessee - pay rent, use premises in “tenant like manner”, yield up possession, not commit waste
what are the statutory obligations (implied covenants) under PLA 2007
imposed on lessor: non derogation, quiet enjoyment
imposed on lessee: pay rent, not to alter buildings without lessor’s consent (though consent may not be unreasonably withheld), not to cause nuisance or commit waste, keep and yield up premises in existing condition, use premises reasonably
what are the implied covenants statutory powers under PLA 2007
powers of lessor - enter the premises at all reasonable times for the purposes of inspection, repair or compliance (but must not unreasonably interfere with the lessee’s occupation or use), cancel the lease if rent remains unpaid for 15 working days or if breach remains unremedied for 15 working days (non-residential)
powers of lessee: terminate the lease if the premises are or become unusable for the purpose(s) specified, expressly or by indication, in the lease (lessee must give reasonable notice)
what is an express covenant in a lease agreement
where an express covenant is included in a lease, it will exclude any implied covenant that covers the same subject matter. express covenants may negative, vary or extend the statutory covenants implied into leases under the PLA 2007.
what is the express covenant of quiet enjoymment
- in principle, no difference between express and implied covenants
- when expressed, the court will look to the contract document and construe it according to its language and context within that lease
- it is an independent covenant. the lessee may sue for breach even if rent is in arrears or if the lessee is in breach of some other covenant(s)
what is the express covenant of lessor’s repairing covenant
- no implied warranty from a lessor that the premises are physically or legally fit for the purpose of the lease, nor is there any duty on the lessor to disclose any defects in the state of repair of the premises before the lease is granted.
- generally no liability on lessor to undertake repairs unless there is an express repairing covenant in the lease
- lessor under no duty to repair until notified of the need for repairs. once informed, lessor should act with reasonable expedition to effect repairs
- lessor has an implied licence to enter for purpose of carrying out repairs
what are the lessee’s remedies for breach of the lessor’s repairing covenant
- seek specific performance
- do the work and claim the cost as damages
- do the work and deduct the expenses from the rent (must notify lessor in advance)
- claim an abatement of rent
- claim damages
(if lessor is in breach of the covenant to repair, lessee must still pay rent)
what is the lessee’s covenant to pay rent
- rent normally a money payment, but this is not necessary. can also consist of tender of goods or performance of services.
- rent does not need to represent the value of the premises. nominal rent is valid
- a rent-free lease is also valid
- liability for rent accrues on a daily basis unless lease provides otherwise
- amount of rent must be certain, but it may vary or fluctuate throughout the lease - however, if there is no provision in the lease for variation of rent, it may only be altered by agreement of the parties
- time and method of payment should be specified - under PLA 2007, rent is payable monthly in advance unless parties agree otherwise
under the lessee’s covenant to pay rent (an express covenant), what is abatement
(suspension of rent)
- complete or proportionate if premises are destroyed or damages (fire, flood, explosion, lightening, storms, volcanic activity and any other risk for which the lessor has insured the property)
- where there is breach of a repairing covenant and lessee has work done (subtract from rent)
- lessee may be able to withhold rent if lessor is in breach of covenant
is a lessee liable for rent or the performance of other covenants during any period in which the lessee is evicted from the premises
no - eviction may be direct and physical, or it may be any act of a permanent character done by the lessor with the intention of depriving the lessee of enjoyment of the premises. if lessee is evicted from only part of the premises, liability to pay rent is abated proportionally
what is the lessee’s covenant to repair
PLA 2007 implies a covenant by the lessee to keep premises in repair but it is usual to modify and expand the lease provisions regarding repairs. the implied covenant will not apply where there is an express repairing covenant, or will only apply to the extent that the express covenant does not.
“reasonable wear and tear” expected - what is “reasonable” depends on the contemplated use of the premises (in context of what they’re doing in it)
what is the lessee’s express covenant not to assign, sub-let or part with possession
right to assign a lease is inherent, so any limitation on lessee’s right must be express - because it is inhibiting an inherent incident of the lessee’s estate, any covenant against assigning, subletting, or parting with possession will be construed strictly against the lessor (contra proferentem)
in what two forms are lessee’s covenant not to assign etc.
absolute - where the lessee acts in breach of an absolute covenant against assignment, the assignee or sublesee will nevertheless obtain an estate in the land. the lessor can leave the arrangement to stand and sue for damages or can cancel the lease, if there is an express or implied forfeiture clause.
qualified prohibition - where the lease states that the lessee cannot assign etc “without lessor’s consent.” This may include “consent not to be unreasonably withheld.” Under PLA 2007 s 226, written notice must be given within a reasonable time if consent is refused, and the lessee may request reasons for the refusal or imposition of any condition. the burden of showing the refusal is unreasonable is on the lessee/assignee and the lessee and other affected parties may recover damages from the lessor if loss is caused by reason of the delay in giving consent
what is the lessee’s covenant to pay rates
- no implied covenant to pay rates
- express obligation is normally included in the lease
- owner of the fee simple remains ultimately responsible for paying rates, even if the lessee is recorded by the local authority as the ratepayer
what is the lessee’s covenant to insure
- no implied covenant to insure, no liability without an express covenant
- alternative approach: lessor undertakes to insure premises but lessee undertakes to reimburse the premiums to lessor
