Landlord’s responsibilities – Commercial leases
Daniel Cowan, Partner
A common part of a commercial lawyer’s practice is drafting Deeds of Lease for commercial Tenant and Landlord clients. To avoid disputes and often undue costs during the term of the Lease, it is important that the parties understand their obligations under the Lease, both implied, and through statute law.
For a Landlord, on the basis that the Lease is on the standard Auckland District Law Society form, the most common obligations to consider are:
Health and Safety
- Under the new Health and Safety at Work Act 2015, (“the Act”) a much needed update to existing health and safety laws was introduced. The Act provides that, PCBU’s (Person Conducting a Business or Undertaking) have the primary duty to ensure the health and safety of workers and others affected by the work they carry out.
- A Landlord is considered to be a PCBU. This means, that it is the Landlord’s primary duty to ensure, so far as reasonably practicable, the health and safety of its workers (including any contractors or subcontractors) that are doing work for the Landlord. A Landlord must also ensure, so far as reasonably practicable, the health and safety of workers that may be influenced by the Landlord or directed by it, while they are doing that work.
- A Landlord must therefore take steps to eliminate, or if not eliminate, minimise, health and safety risks to its workers. Further, a Landlord must ensure that it coordinates health and safety plans with building Tenants, particularly when work (repairs, maintenance etc) is carried out at the leased premises.
- A commercial lease generally requires a Landlord to maintain insurance of the type, and for the risks, specified in the First Schedule of the Lease (specified insurance), at all times. However, if the specified insurance becomes unavailable during the term of the Lease, or any renewal, other than because of the Landlord’s act or omission, the Landlord will not be in breach of the Lease while such cover is unavailable, provided the Landlord uses all reasonable endeavors on an ongoing basis to obtain cover.
- Taking into account unforeseeable events such as the Christchurch earthquakes and flooding in and around Auckland, it is important that a Landlord takes care to arrange insurance cover that is sufficient to rebuild the building, in a worst case scenario event.
- Although such insurance costs are usually recoverable from the Tenant, if a Landlord’s insurance does not extend to cover a particular risk, any loss suffered as a result of that risk, cannot be recovered from the Tenant. It is therefore important that a Landlord reviews its insurance cover regularly to ensure that the level of cover remains adequate.
Maintenance and Repairs
- Generally, a Landlord is obliged to keep and maintain the premises, and its services, in good order and repair. This includes keeping the premises weatherproof, and therefore keeping the roof in good order and repair. This obligation does not usually extend to the interior of the premises, or any breakages (i.e windows) and minor repairs, which fall to the Tenant.
- Building Act 2004
A Landlord is generally required to comply with the provisions of the Building Act 2004, as well as the Building Code. This means that, as well as ensuring that any works done by a Landlord at the premises have the proper consents and permits, a Landlord must also ensure that the premises has a current Building Warrant of Fitness (BWoF), and supply its Local Authority with the BWoF if required.
- One of the key obligations of a Landlord, is to allow the Tenant to occupy the premises without any interruption by the Landlord during the term of the Lease. This means that the Tenant has the right to the full benefit of the premises, subject of course to the Tenant complying with its own obligations under the Lease, for the purpose of operating the business, without interruption from the Landlord.
Assignment of Lease
- During the term of the Lease, it is not uncommon for a Tenant to approach the Landlord with a request to assign the Lease to a third party. For example, when the Tenant wishes to sell its business. In this instance, the Tenant must obtain the Landlord’s consent to the assignment, and the Landlord must act reasonably when considering the assignment.
- A Landlord generally cannot impose further obligations on the new Tenant that are unreasonable, however, a Landlord will have the right to consider whether the current Tenant is in breach of the Lease, and request sufficient information of the new Tenant to assess whether the new Tenant is able to support its obligations under the existing Lease.
The obligations listed above are not an exhaustive list of a Landlord’s obligations under a commercial Lease, particularly if the terms are negotiated between the parties, or if further terms are inserted. Landlords should see their lawyer before entering into a commercial Lease, and either have their lawyer draft the Lease, or review its terms, prior to signing.
The information contained in this paper is necessarily of a generalised nature and specific advice should be sought in relation to any particular situation. Further information and assistance in relation to this article can be gained by contacting senior commercial lawyer Daniel Cowan.