Act trumped by lease on fixture removals

Each week, national law firm Simpson Grierson answers commercial property questions which can be emailed and headed "property problems". This week's question is answered by senior associate Daniel Kelleher who can be contacted at daniel.kelleher@simpsongrierson.com

Q. I own a property leased by a multi-national organisation. The lease expires shortly and we are currently going through the "make good" and required "repairs and maintenance" clauses in the lease that the lessee needs to satisfy after it expires. The question I have is surrounding the make good of the lessee's fixtures. The Deed of Lease was originally prepared by the lessee when it owned the property. The property was then sold to me subject to that lease.

One of the clauses in the lease says that: "The lessee not being in breach may at any time before and may at the lessee's discretion at the end or earlier termination of the term remove any or all of the lessee's fixtures and fittings and may (but shall not be obliged to) make good at the lessee's own expense all resulting damage."

The lessee will be removing some of its fixtures and fittings however it has stated that it will not carry out the "make good" once removed. Section 266(3) of the Property Law Act 2007 provides that the lessee must make good any damage when removing its fixtures. The lessee does not agree saying "the lease prevails". Does the Property Law Act trump the lease in this instance?

A. The Property Law Act 2007 does change some aspects of the rights as between a lessor and a lessee such as the right to cancel the lease and in obtaining the lessor's consent under certain circumstances like an assignment of the lease. Some of the provisions of the Property Law Act 2007 override the provision of a lease. For example, regardless of what the lease says, a lessor is not able to cancel the lease until the lessor has followed all the steps set out in the Property Law Act 2007.

However the provisions in section 266 of the Property Law Act in relation to a lessee's removal of its fixtures do not fall within the sections of the Property Law Act that override a lease. The provisions in section 266 of the Property Law Act are not compulsory. The section will only apply in circumstances where the lease does not deal with the situation.

In other words, the lessee's right to remove its fixtures under section 266 of the Property Law Act applies where the lease does not say what happens to the lessee's fixtures at the end of the lease.

From what you have told us, your lease deals with the situation so that the lessee can decide whether or not to remove its fixtures on or before the expiry of the lease. Unfortunately, your lease then provides that the lessee also has a right to decide whether to make good any resulting damage. Therefore, section 266 of the Property Law Act does not apply to your situation.

If the lessee causes extensive damage when removing its fixtures then it might be possible for you to sue the lessee for damages under a duty of care in the general law. This would be outside of the parties' contractual rights and obligations under the lease and the lessee might not be able to hide behind its contractual rights. This all depends on how much damage the lessee causes.

You should note that the lessee should remove its fixtures on or before the expiry of the lease.

You are not obliged to allow the lessee to have access to the premises to remove its fixtures after the lease has ended.

Presumably there will be other clauses in your lease that deal with the maintenance of the premises and in what condition the lessee is to return the premises to you at the end of the lease.

Unfortunately your lease was prepared by a party that was related to the lessee when you were not the lessor. If your lease was on the same terms as the Auckland District Law Society 5th edition deed of lease then the lessee would still have the right to remove its chattels and fixtures but the lessee would be obliged to make good any damage that the lessee causes when removing its fixtures.

The information contained in Commercial Property is intended to provide general information in summary form current at the time of printing. The contents do not constitute legal advice and should not be relied on as such. Specialist advice should be sought in particular matters.