Leases Notes

Leases

  • Leases are a proprietary interest and an estate in land, existing at law or in equity.
  • Arises when a lessor/landlord confers on a lessee/tenant:
    • The right of exclusive possession of certain land.
    • For a period subject to a definite limit, or that can be made subject to a definite limit by either party.
  • Have both a proprietary and a contractual basis:
    • Both "an executory contract and an executed demise."
    • Grant of a lease completes the conveyance of a proprietary estate in land but remains partly executory as rights and obligations persist during the lease period.
  • There has been a "contractualisation" of leases, with courts exploring contract law for alternative remedies and as a basis for implied terms.
  • The court applies usual contract construction rules where the lease is written.
  • The primary basis of NZ law relating to leases is the common law.
  • Relevant statutory interventions:
    • Residential Tenancies Act 1986: Applies to residential leases within its scope.
    • Property Law Act 2007 (part 4): Applies to all other leases.

Māori Land and Leases

  • Māori customary and freehold land under the Te Ture Whenua Māori Act 1993 is inalienable except:
    • For dispositions (including leases) effected by order of the Māori Land Court.
    • For leases of a term of not more than 3 years (including any terms of renewal).
    • Every title and interest in Māori customary land must be determined in accordance with tikanga Māori.

Essentials Required for the Creation of a Lease

  1. Fixed or periodic term.
  2. Certain premises.
  3. Exclusive possession.
  4. Proper Creation.
  • Rent is NOT an essential element of a lease, although it is an important indicator (Fatac Ltd (in liq) v Commissioner of Inland Revenue).
  • Lessor cannot confer on a lessee any right that the lessor doesn't possess (Gulf Harbour Investments Ltd v Rodney District Council).

Essentials of a Lease

  • Lease must have a time of commencement and a time of ending.
  • Must be express, implicit, or capable of being rendered certain from the outset of the term.
  • May be any length: day or millennia.
  • May be granted for a term that ensures regular but non-consecutive periods of enjoyment.
  • Periodic leases satisfy the certainty of a term requirement.
    • Each party can terminate the lease at the end of any period by giving appropriate notice (Prudential Assurance Co Ltd v London Residuary Body).

Equitable Leases

  • Termination is based on the occurrence of a future event, PLA 2007 (s 212) provides for the creation of an equitable lease.
  • Future event must be sufficiently defined in the lease so that the event can be identified when it occurs.
  • Equitable interests cannot last for more than ten years; if the event has not occurred before the 10th anniversary of the data began, the lease automatically terminates on the 10th anniversary.

Certain Premises

  • The subject matter of a lease must be described and identified with certainty.
  • Generally not difficult to meet this requirement (All that needs to be done is the addition of the property's address).
  • Goldsworthy Mining Ltd v Commissioner of Taxation (1975):
    • Involved a lease to dredge a harbor to facilitate the transportation of iron ore.
    • The question was whether the description of the seabed in the agreement was sufficiently certain to support a lease agreement.
    • "No reason the law should not recognize a boundary capable of moving, so long as it was capable of ascertainment at any point in time."

Exclusive Possession

  • The legal right of exclusive possession is distinct from mere factual occupation.
    • Exclusive possession encompasses the right of excluding anyone from the land in law.
  • Scope of the right to exclude:
    • Lessee may exclude everyone, including the landlord (subject to the reservation of a limited right of entry by the landlord) (Radaich v Smith; Fatac Ltd (in liq) v Commissioner of Inland Revenue).
    • Freedom from control - Freedom of the lessee from any detailed supervisory control in respect of the use and occupation of the premises.
  • NZ approach:
    • Parties' subjective intention, or the label they have attached to the arrangement, is NOT decisive.
    • Agreement must be construed as a whole and in context to determine.

Proper Creation

  • No restriction on the length of term of a lease which may be registered.
  • Where the fixed term of a lease exceeds one year, a legal estate will not pass until a lease instrument in the appropriate form has been registered.
  • Under PLA 2007, only "short-term leases" (less than one year) do not require registration.
  • Short-term leases may be made orally or in writing and still amount to a legal interest in land.
  • It is not mandatory to register a lease, even if it exceeds one year, and in practice, many leases go unregistered.
  • An unregistered lease instrument for a fixed term of over one year has the effect of a deed (equitable remedies available).
  • Doctrine of Walsh v Lonsdale will apply:
    • Specific performance will be available, and parties' rights and liabilities will be determined according to the terms of the memorandum.

Types of Leases - 7 Variants

  • Fixed Term
    • A lease may be granted for any length of time, whether long or short, continuous or discontinuous.
    • Examples:
      • Lease of a residential apartment for a single term from 1 to 31 October 2021.
      • Lease of a commercial storefront for 3 years, with the possibility of renewal for an additional 3-year term.
      • Lease of a holiday home for the month of June, every year for 10 years.
      • Lease of farmland for 99 years.
    • May be assigned and will not determine on the death of the tenant; vests in the executors/administrators of the deceased tenant until the lease runs out.
  • Perpetual Leases
    • Not recognized at common law, a vernacular used term.
    • Phrase 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: Usually for perpetually renewable periods of 14 or 21 years.
      • A type of arrangement common with charity - property put to a certain use without the transfer of ownership.
      • Have been used to grant terms that last over 100 years, de facto fee simple ownership, but with the right of termination.
    • Pastoral leases of Crown land granted under Land Act 1948: Farmers can lease/grant licenses crown land for long periods of time.
      • The Crown cannot sell much of its land due to statutory limitations, etc.; perpetual leases are therefore common.
  • Express Periodic Tenancies
    • Grant for a "period" (e.g., a week, month, year) that will continue to renew itself until either party terminates the lease by giving notice to quit.
    • Useful when there is uncertainty around the occupation of tenants.
    • Apparent exception to the common law requirement that the maximum duration of a lease must be certain at its beginning.
    • Inherent mechanism that either party can terminate the lease by giving sufficient notice (e.g., at common law, a 1-year lease required 6 months of notice).
    • The right of each party to give notice is inherent.
    • Most periodic tenancies are granted for a period of a year or a fraction of a year, falling under the definition of a "short-term lease" (PLA 2007).
    • Therefore, most periodic tenancies can be created orally or via writing without the need for registering under the LTA 2017 for a legal estate to pass.
    • May be assigned and will not determine on the death of the tenant; vests in the executors/administrators of the deceased tenant until terminated.
  • Implied Tenancies and Leases ("s 210 Leases")
    • S210 PLA 2007
    • Apply in specific circumstances not concerning residential tenancies.
    • Applies where:
      • The lessee is in possession of the land, but there is no agreement (express or implied) as to the duration of the term; or
      • The lessee remains in possession of the land with the lessor's consent, although the 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.
    • Leases that came into effect before 1 January 2008 cannot be s210 leases; common law rules apply.
    • Rebuttable presumption that a tenancy to which s 210 applies is determinable according to the 20 working days' notice period.
    • Parties can have a different notice period if parties intended this (based on rent paid weekly, monthly, etc.) as per a tenancy at will.
    • Where a tenant holds over on a s 210 lease, the terms of the original lease will apply insofar as they are not inconsistent.
  • Tenancy at Will
    • Created by express or implied agreement (e.g., parties previously had a lease fixed term, but the term ran out without another agreement being entered into).
    • But the conduct of the lessee and lessor (e.g., payment of rent, maintenance on property, etc.) imply an agreement between parties.
    • Confers exclusive possession on the occupier for an indefinite period.
    • The period may be terminated at any time, at the will of either party. No notice to quit is necessary to determine.
    • A hybrid - has characteristics of both licenses and periodic tenancies.
    • Tenant at will has no estate in the land and cannot assign the interest.
    • However, the tenant has an exclusive right of occupation and can maintain an action of trespass against a third party (unlike a licensee).
    • Relevant for residential and non-residential circumstances.
  • Express Tenancy at Will
    • Unusual; may arise in the "holding over" situation if the parties have agreed that this kind of arrangement should be recognized.
    • Not a short-term lease under the PLA - none of the protections under the PLA.
    • Express Tenancy at will override s210 lease for non-residential if express provision.
  • Implied Tenancy at Will - example
    • A prospective purchaser is let into possession before the completion of the land transfer.
    • A prospective tenant is allowed into occupation while negotiations for a lease are still continuing.
    • Tenant holds over after the 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.
  • 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 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.
    • The absence of consent distinguishes the tenancy at sufferance from the tenancy at will.
    • The absence of dissent prevents a tenant at sufferance from being a trespasser (e.g., No communication around vacating, issuance of trespass, etc.).
    • Tenant at sufferance may maintain an action of trespass against a third party and may recover possession.
    • The tenant may leave at any time without notice.
    • The landlord may bring an action for use and occupation and may eject the tenant at any time.
  • 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.
      • The owner sells the house to a family trust for current market value, subject to a lease for life.
      • Reduces the value of an individual's estate, maximizing their entitlement to asset-tested benefits and subsidies while also avoiding gift duty.
    • Also common in retirement villages.
    • In RTs, the death of the tenant usually is the determinative factor, but this is not the case for NRTs.

Parties' Rights and Obligations (Lease Covenants in General) - Most for NRT under PLA

  • Quiet Enjoyment
    • A 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 acting as landlord agents) interfere 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 even if reasonably necessary (Owen v Gadd).
      • Commercial storefront lease, multiple entities operating in the same building.
      • The lessor had leased a shop on the ground floor to the lessee.
      • After they executed the lease, they put up scaffolding in front of the window of the shop because repairs were urgently necessary to the upper floor of the building.
      • The court found that putting up scaffolding was a breach of quiet enjoyment.
    • Implied at common law; codified under PLA 2007 (s218).
    • "Enjoyment" refers to the exercise and use of the right and having the full benefit of it, rather than deriving pleasure from it" (Kenny v Preen).
    • Norden v Blueport Enterprises
      • Commercial building, a software company operating on the bottom floor, upstairs another company was operating a brothel.
      • Loud noises and disruptions from above floor from escort agency.
      • Held that quiet enjoyment was breached, even though the landlord was not directly involved in brothel operation.
    • Remedies for Breach:
      • 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.