Developers Beware When Buying Tenanted Residential Properties

May 26, 2021

in Building & Construction,Property

The changes to the Residential Tenancy Act have been significant over recent times.

Some of the latest changes have incorporated new provisions about termination of tenancies including impacts on fixed term tenancies.

In addition there are new restrictions on termination of periodic tenancies except in certain specific circumstances and generally with extended timeframes when termination is actually possible.

Importantly there are now a very specific range of situations that will entitle a landlord to terminate periodic tenancies. Simply providing 90 days notice without it being for one of the reasons specified in the legislation will not be sufficient.

For developers the real risk is the question of timing for termination of a tenancy. While there are provisions in the Act which enable termination of tenancies where the property is required for development the timeframe is a minimum of three months.

We have had developer clients running into problems where they have acquired property subject to a fixed term tenancy assuming that they can expect vacant possession at the end of the fixed term tenancy period, however the legislation now automatically converts the fixed term tenancy into a periodic tenancy at the end of the fixed term if the parties have not agreed otherwise, which quite often will not be the case.

This can have significant cost implications for a developer if they have set up their development expecting to have contractors on site shortly after the fixed term tenancy ends only to find that they may have a three month delay before construction can commence including demolition. This can have drastic consequences under a construction contract ranging from such things as significant additional costs and/or the possibility of losing a contractor who is delayed potentially for three months before starting.

The obvious consequences on programme of works and additional costs to the developer are significant.

We are advising a number of our developer clients on these issues at this point and can advise you on all aspects associated with property development.

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

Paul Farry
09 353 6671


Cornelius Botha
09 353 6677

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 Law does not accept liability for any errors it may contain. 

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