Property problems: Leases ancient and modern confuse picture

Q: For 30 years, I have leased commercial property and the lessee has been renewing the lease regularly. Three years ago, we agreed to rewrite the lease on a more modern Auckland District Law Society standard form. Recently, the lessee gave notice that it intends to vacate the property at the end of the current period. Both the modern and original leases contain clauses that the lessee has to make good any damage done to the property. The lessee is arguing that it only has to make good damage done in the last three years (since the signing of the modern lease). I think the lessee needs to make good any damage done since the commencement of the original lease 30 years ago. The long-term damage to the property has been significant, including contamination and damage to floors and walls from heavy machinery. Who is right in this situation?

A: Without reviewing the lease documents it is difficult to say with any certainty. It is unclear whether the modern lease incorporates or supersedes the original lease. If the modern lease incorporates the original lease (including the covenant to repair damage), it is likely that the lessee will be required to make good any damage done since the commencement of the original lease. The exception to this is any damage caused by fair wear and tear through reasonable use of the leased property.

What is deemed "reasonable use" is generally contingent on the nature of the commercial property, and the permitted use of that property as contained in the lease.

If the modern lease supersedes the original lease, which we anticipate it may well do, and it excludes section 106 of the Property Law Act 1952, it is likely that the lessee will have to repair damage only since the commencement of the modern lease, three years ago.

However, even if the modern lease supersedes the original lease, you may still be able to bring a claim against the lessee under the Property Law Act (provided it was not excluded in the lease documents) and/or under the common law doctrine of tort.

Section 106(b) of the Property Law Act implies into every lease the obligation on the lessee to keep the premises in good and tenantable repair. This obligation applies to the state of repair during, and at the expiration of, the term of the lease. When determining what constitutes "good and tenantable repair" regard will be had to the condition of the premises at the start of the lease. Provided the original lease does not exclude section 106(b) of the Property Law Act, it may be arguable that at the expiration of the original lease the lessee was obligated to yield up the premises in good and tenantable repair, and that it failed to do so.

If the original lease was by way of a deed, the statutory limitation period of 12 years is likely to apply to any such claim. Although it has only been three years since the expiration of the original lease, and therefore it would appear you would still be in time in bringing such a claim, the lessee may be able to argue that, in not enforcing this obligation on it until now, you have waived your right to do so.

Whether the modern lease supersedes or incorporates the original, you may still be able to bring a claim against the lessee in tort. You may have grounds for actions in negligence and/or against the lessee for committing waste.

However, if the long-term damage to the property was caused by reasonable or authorised use of the property, then the lessee's liability in negligence or waste may be difficult to prove.

In the end, who is correct in these circumstances will depend upon whether the modern lease supersedes or incorporates the original lease, and also on how the damage to the leased property occurred.