We often have clients involved in situations where the tenant is alleging the landlord is in breach and holding back on rent on the basis of that alleged breach.
In most instances, the lease documentation is clear there is no right to withhold rent for any counterclaim or set-off the tenant alleges. The law and the courts have consistently held that the tenant must pay the rent in those circumstances or risk the termination of the lease.
One area where there is a potential to avoid this situation is where the lease specifically provides that if the landlord fails to provide or do a certain thing specifically covered by an abatement clause then the tenant is entitled to an abatement or reduction of rent for so long as the specified breach is in existence.
In these circumstances, the courts have held that a tenant may legitimately hold back rent in respect to the right of abatement without risk of the landlord being able to terminate the lease for non-payment of rent. Each situation is dependant on its facts but the tenant should be aware that it is likely that the tenant would have to at least pay the amount of rent in question to an independent stakeholder such as a third party solicitor’s trust account to at least be able to show that they have the ability to pay the rent which is a fundamental requirement for an application for relief against forfeiture where the landlord is seeking to terminate the lease for non-payment of rent.
The key message here is that if there are vital terms that are essential to the tenant and the tenant would not want to be paying rent if they were not met, then the lease should record a right to abatement of rent to protect the tenant in those situations. Without that right, there is very little chance that the tenant will be able to avoid the obligation to pay rent and then use the dispute procedures in the lease to deal with any issues.
We are experts in all aspects of commercial leasing and often are engaged by both tenants and landlords on such issues.
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.