Property problems: When tenant converts office into bedrooms

Q. I own commercial office space that I lease. I recently became aware that the tenant has sublet the premises to a third party and that some of the office space is now being used as bedrooms. After raising this as an issue with the tenant, the tenant claimed that a residential tenancy now existed and that the Residential Tenancies Act 1986 applies to the lease. What are my options?

A. The first issue to determine in this instance is whether the lease is subject to the Residential Tenancies Act (in which case the Tenancy Tribunal has jurisdiction to determine any dispute under the lease).

The Residential Tenancies Act applies to all residential tenancies. It does not apply to commercial premises. Residential premises are defined as any premises used or intended for occupation by any person as a place of residence.

The act provides that where any premises are used for both commercial and residential purposes, the tenancy shall be deemed to be for residential purposes unless it is proved that the premises were let principally for purposes other than residential purposes.

Given the significant protections afforded to tenants under the Residential Tenancies Act, as landlord, you would argue that the premises are not residential premises.

Evidence to support this would include the lease itself and the specific clauses that indicate a commercial leasing arrangement (in most cases there will be a clause specifying the commercial uses to which the premises may be put), the facts surrounding the letting of the premises to the tenant and the nature of the premises as commercial office space.

All these factors taken together lend weight to the view that the lease is for commercial premises and as such, it is likely to be outside the scope of the Residential Tenancies Act and the jurisdiction of the Tenancy Tribunal.

The next thing to consider is whether the tenant has breached the lease by subletting the premises and using part of the premises for accommodation, and the remedies available to you in respect of those breaches. Of critical importance in determining these issues is the lease, the terms of which set out the rights and obligations of the landlord and tenant.

Generally speaking, in commercial leases there will usually be a covenant against the tenant sub-letting the premises without the landlord's consent (with such consent not being able to be unreasonably withheld). As noted above, there is also likely to be a covenant in the lease specifying the use to which the premises may be put (ie. for commercial use and not residential use).

Once a breach has been established, you must decide whether to demand the breach be remedied (if it can be remedied) or leave the matter as is. For breaches of the above nature, you cannot simply re-enter the premises and terminate the lease.

Instead, a notice issued under section 118 of the Property law Act 1952 must first be served on the tenant specifying the nature of the alleged breaches of lease, requiring the breaches to be remedied (if they can be) and providing the tenant with a reasonable time within which to remedy the breaches. Given the nature of the breaches, it would be advisable to serve a copy of any such notice on the "sub-tenant" - the unlawful occupier of the premises.

If the tenant does not remedy the breaches, then you could consider whether it is possible to peaceably re-enter the premises and terminate the lease, or treat the lease as continuing.

You could also terminate the lease by instructing solicitors to file proceedings in court for possession of the premises.

* The information contained in Prime Assets 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.