Failure to Renew Lease to Negotiate Better Terms Can Backfire

February 7, 2018

in Property

 

Commercial tenants often face a decision when their lease becomes due for renewal. Do they renew or do they not renew and if they want to renew, can they negotiate better terms?

Often one of the key fundamentals of renewal is what rental will be payable by the tenant upon the renewal.

This can result in the tenant delaying the notification of the renewal notwithstanding that the lease has a specific timeframe specified for renewal.

This constitutes a technical breach of the lease.  Often the landlord is comfortable with this process of delay while terms are negotiated however there is always a risk that the landlord becomes frustrated and/or determines that they are not prepared to tolerate the delays and therefore force the tenant to either make a decision or take the more draconian step of cancelling the lease on the basis of the tenant’s failure to renew.

This decision by the landlord can sometimes come out of the blue for a tenant and put the tenant at a significant disadvantage if the tenant was always intending to renew.

The legal position has generally been accepted that a landlord will be susceptible in those circumstances to an order for relief from the Court upon an application by the tenant for relief against cancellation.

However the High Court has recently given a clear indication that a tenant runs the risk of not satisfying the criteria to obtain relief against cancellation for delaying renewal merely on the basis of trying to negotiate better terms.

In the absence of any other circumstances, it may very well be that the Court takes the position the tenant has tried to advance its own position in breach of its obligations under the lease and must accept the consequences that flow.

At the very least, the tenant faces the risk of a significant order of costs against the tenant in respect to the application even if successful on getting the Courts to agree to grant an order preventing cancellation.

Tenants need to take note of this and carefully consider the procedure and process they adopt around renewal.  It would be wise to commence negotiations with the landlord at the earliest opportunity if negotiation of terms with the landlord are critical to the tenant as part of the renewal process.

Farry and Co. are experts in all aspects of commercial leasing and can advise you in relation to any issues concerning commercial leasing whether a landlord or tenant.

If you require any advice or further information on the matters dealt with in this publication please contact the lawyer at Farry and Co. who normally advises you, or alternatively contact:

Paul Farry
pfarry@farry.co.nz
09 379 0055 or 03 477 8870

 

The information contained in this publication is intended as a guide only. It does not constitute legal advice and should not be relied upon as such.  Professional advice should be sought before applying any of the information to particular circumstances.  While every reasonable care has been taken in the preparation of this publication, Farry and Co. does not accept liability for any errors it may contain. 

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