Most Read Contributor in New Zealand, September 2016
This article was first published on
The inner CBD in Christchurch has been under cordon since the
February 2011 earthquake, and is not expected to be fully re-opened
to the public until April 2012 – more than a year
Almost 600 buildings within the CBD have been either demolished
or marked for demolition. The effect on businesses in the
cordoned off area has been severe.
Businesses were required to relocate to alternative, often less
adequate, premises outside the CBD in order to continue keep
operating. As there was fierce competition for alternative
premises, business owners often made relocation decisions quickly -
without clarity as to the extent of damage to their existing
premises or when it would be possible to return to the CBD.
This has put the spotlight on commercial leasing
Where properties were extensively damaged or destroyed, the
position was relatively clear-cut. The lease came to an end
and the tenants were able to move on, although some did experience
problems with retrieval of their fixtures and chattels where the
building was not destroyed.
But tenants in buildings that were not destroyed or extensively
damaged were not so lucky. Their leases remained in place,
and in most cases they remained responsible for rent and outgoings
– even if they were unable to access or occupy their
premises because of the cordon, damage to surrounding buildings or
unavailability of services. If those tenants relocated to
alternative premises outside the CBD, they also faced the expense
of alternative premises.
The experience has led to new demands as commercial leases are
negotiated or as existing leases are re-negotiated. The
extent to which these demands are accommodated depends upon the
bargaining strength of the parties, the nature of the premises and
the term of the lease.
Some of these factors are peculiar to Christchurch. Others
will likely emerge in other areas which have sustained a natural
disaster or emergency, or more generally as tenants seek to protect
themselves against the risk of extreme weather events.
So what are tenants in New Zealand now looking for in their
Unsurprisingly, there is a lot of focus on the application of
damage and destruction clauses. Tenants want the lease to
specify that these will be triggered in circumstances where the
tenant's actual premises may be undamaged or have sustained
only minor damage but are uninhabitable because of damage to other
parts of the building, to services in the building, or to the
landowner's surrounding land.
Inclusion in the agreement of specific drop dead dates for the
commencement and completion of repair work, with a right to
terminate the contract if these dates are not met. The
deadlines in which to undertake the repairs tend to get
progressively shorter through the term of the lease.
Landlords recognise the greater certainty the provisions provide
but arguments typically arise as to the appropriate
Compensation for loss of business and relocation costs where
the lease provides for the landlord to retake possession of the
premises in order to undertake repairs to, or demolition of, the
building. Landlords are seeking to provide only an abatement
Abatement of rent where access to the premises is denied as a
result of causes beyond the building (for example, a cordon or
disruption of essential services), with a right of termination if
this persists for a specified length of time. The nature and
extent of insurance held by the landlord and the tenant is
particularly relevant in these negotiations. Arguments arise
as to the appropriate periods.
Insurance premiums and excesses are likely to increase
significantly in New Zealand as a result of the Christchurch
earthquakes. Tenants are nervous about increased costs being
recovered under operational expenditure (OPEX) and outgoings and
are seeking to limit exposure. Landlords are refusing to cap
or limit recoveries under OPEX or outgoings.
Seismic risk has become a bigger issue throughout New Zealand as
a result of the Canterbury quakes. This has fed into lease
negotiations with landlords seeking clauses to provide for access
and rights to undertake earthquake strengthening and tenants
seeking to limit any disruption resulting from such works.
Tenants are also looking to limit the amount of any contribution to
those works that may be payable as an improvements rental.
The information in this article is for informative purposes
only and should not be relied on as legal advice. Please contact
Chapman Tripp for advice tailored to your situation.
To print this article, all you need is to be registered on Mondaq.com.
Click to Login as an existing user or Register so you can print this article.
Please briefly describe the main laws that govern real estate in your jurisdiction.
Some comments from our readers… “The articles are extremely timely and highly applicable” “I often find critical information not available elsewhere” “As in-house counsel, Mondaq’s service is of great value”
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).