LEASE RIGHTS OF RENEWAL - Answers to commonly asked questions
What is a right of renewal?
It is an option granted to the tenant to enter into a new lease
with the landlord. It is not an
extension of the existing term of the lease.
A right to extend the term of the lease is distinct from a right of renewal.
An extension of the term of the lease rather than the granting of a new lease has certain
consequences [refer questions 6 and 7 of this article].
Does a landlord have a choice whether or not to renew the lease?
No - as long as the tenant complies with any pre-conditions contained in the lease (for example,
the tenant not to be in breach of the lease or that the new lease to be guaranteed by the
guarantor), the landlord cannot refuse to grant the new lease.
If the landlord refuses to grant a new lease when the renewal is properly exercised, the tenant can
apply for relief under section 120 of the Property Law Act 1952.
How is a right of renewal exercised?
Usually by notice in writing to the landlord within certain timeframe's set out in the renewal clause.
A deed of renewal is usually entered into after the renewal is exercised. This deed of renewal is the
formal granting of the new lease.
What if no deed of renewal is entered into?
If there is no deed of renewal, the landlord and tenant would need to rely on other evidence to
show that a new lease had been granted, eg correspondence recording that the right of renewal
had been exercised and subsequent payments of a new rent or other actions which may prevent
the tenant or landlord from contending that a new lease had not been granted.
Can a tenant decline to proceed with a renewal if the tenant does not agree with the rent
proposed by the landlord?
Usually, the rent is determined after, and as a consequence of, the renewal being exercised.
Agreeing on the rent is not usually a pre-condition to entry into the renewed lease. Unless the
lease provides otherwise (which would be unusual), the tenant is committed to the renewed lease
on exercising the right of renewal. The rent then has to be determined in accordance with the rent
review provisions of the lease.
Does a guarantor have to sign a renewal?
A guarantor (whether it is the initial guarantor or any subsequent guarantors introduced when the
leases are assigned) guarantees the current term of the lease but does not have to guarantee a
renewed lease.
COMMERCIALLEASING
HOWEVER , in practice, the position is usually different:
• The 4 nth edition 2002(2) form of the Auckland District Law Society lease (ADLS lease) allows
the landlord to require the current guarantor (at the time that the renewal is exercised) to guarantee
the renewed lease.
• A High Court decision [1] has interpreted the renewal clause in the 3 rd edition of the ADLS
lease as giving an extension of the existing term of the lease, and not a renewal of the lease. This
means that under the 3 rd edition of the ADLS lease, the original guarantor and any subsequent
guarantors would be liable during the extended term, even if they do not sign any further
documents. Although this decision is the current law it will be interesting whether it is followed in
future decisions.
[1] If a lease has been assigned, are the original tenant and guarantor liable under a renewal of
lease?
No - the original tenant and guarantor are not liable under the renewed lease where the lease has
been assigned.
HOWEVER, in practice, the position is sometimes different: :
• The original tenant and guarantor are not liable because the new lease will be signed by the
assignee and the original contractual relationship between the original tenant, the guarantor and
the landlord is lost.
• However, if the renewal clause is interpreted as an extension of the term, as it was in the Powell
decision, then the contractual relationship between the original tenant, guarantor and landlord
would continue and therefore, the original tenant and guarantor would continue to be liable to the
landlord if the lease is renewed by an assignee.
• Whether subsequent tenants and guarantors, who, in turn, have assigned the lease, would be
liable where a renewal has been interpreted as an extension of the term, will depend on whether a
covenant was entered into between the subsequent tenant and guarantor and the landlord to
create a contractual relationship. If such a covenant was entered into (which is usual), then
subsequent tenants and guarantors, who have assigned the lease, would also be liable under such
an extension of term.
If a landlord sells the property, section 112 of the Property Law Act 1952 means that the new
landlord can pursue the existing tenant and, most probably, the original tenant [2] , for any
breaches of the lease.
What if the tenant does not exercise the renewal in the timeframe stipulated in the lease?
Recent decisions [3] indicate that the landlord must remind the tenant that the lease is due for
renewal and therefore give the tenant every opportunity to renew the lease. The tenant otherwise
has the right to apply to the court for relief against the lease being terminated by the landlord.
Caution
As the wording of renewal clauses differ from each other and the circumstances surrounding the
exercise of a renewal will differ, the comments in this article must be read subject to the particular
wording of the relevant clauses and subject to the particular circumstances surrounding the
exercise the right of renewal.
It is recommended that you consult a solicitor for assistance in interpreting the wording of a clause
and assessing all relevant circumstances surrounding the exercise of a renewal.
If you have any queries about leases please contact John Dunlop, as senior solicitor at Hesketh
Henry ([email protected])
• [1]PowellvTinlinePropertiesLimited[2002]1NZLR,568.
• [2]CashmerevMorris[1993]3NZLR,587.
• [3]KoovTuataraHouseLimited(unreported,HighCourt,Auckland,M1578‐IM02;
• Mac'sCoveTenderCentreLimitedvBoyd(2003)4NZ
Conv,C193,654;
• WalshandMulliganvUtting[2004]1NZLR,403.
If you have any queries about leases please contact John Dunlop a senior associate at Hesketh
Henry on email: [email protected]
or by phoning +64 9 375 8726
