Spring/Summer 2016 Newsletter

How well do you know your lease?

The majority of lease arrangements (commercial leases, not residential tenancies) are entered into using the Deed of Lease provided by the Auckland District Law Society. Whether you are a business owner and tenant, or a landlord, it is important that you understand your rights and obligations. How well do you know your lease?

Tenants right to quiet enjoyment

As a tenant, you will typically hold a right to quiet use and enjoyment of the property. Contrary to the wording, this right does not mean you can pursue the landlord for noisy neighbours, rather, it means that the landlord will not interfere with your possession and use of the property. If the landlord were to breach this term, this could give rise to a claim for damages or you could apply for an injunction to stop the interference.

Tenants’ maintenance obligations

Tenants are often responsible for the maintenance and care of the property. Some of the responsibilities that you may not be aware of include:

Liability on assignment of your lease

There are a number of different reasons that tenants assign their leases, for example on sale of a business. An important part of selling your business is ensuring that it is attractive as possible to a potential purchaser. This means making sure that a new tenant can continue to stay in the business premises long term, either by way of a long lease or by providing several rights of renewal. What many people do not realise however, is that the original tenant’s liability does not necessarily end when they assign the lease (and become an “assignor”) to a new tenant.

If you enter into a lease you will typically still be liable for the full current term of that lease regardless of whether you assign to a new tenant. If the new tenant breaches any of the conditions of the lease, you could still be liable for that breach. For example: if the new tenant fails to pay rent, the landlord can often pursue you for the loss, as even after assignment of the lease you can still retain your original contractual obligation to the landlord.

When liability ends

Your liability as assignor will typically end at the expiry of the current lease term in place at the time of assignment. If the purchaser exercises a right to renew after that term has expired, this would effectively be a new lease and you will not be liable for a breach by the new tenant during the new term.

You can limit your risk when assigning your lease by asking the landlord to agree to limit your liability (although they do not have to agree). You could also require the new tenant to provide you with an indemnity; however this does not prevent the landlord recovering from you for any breach of the lease in the first instance.

 

Trust law: trustees’ duties – are you at risk?

You might have been asked by a friend or family member to be an independent trustee of a Trust. You may also have been appointed as an executor of someone’s estate, which will often also make you a trustee of the estate assets.

Trustees have strict duties to the beneficiaries of the Trust. Most duties are contained in the Trustee Act 1956. In certain situations trustees can be held personally accountable for their actions or for failing to act, so it is important trustees understand their rights and obligations.

 All trustees must know the terms of the Trust (or the terms of the Will as the case may be), and must ensure the Trust (or Will) is managed in an efficient and economic manner. Trustees should take all precautions that an ordinary prudent business person would take in managing similar affairs of his or her own – a trustee must act with care and diligence. An independent trustee is not a ‘rubber stamp’, meaning they must not blindly agree with and follow the instructions of the remaining trustees or settlors; trustees must carefully consider their decisions.

Trustees have a duty to make prudent investments. This duty applies to the methods trustees use to make the investment, rather than looking at the actual results of that investment. A failed investment is not necessarily a breach of trust as long as the trustees acted prudently when choosing that investment.

Trustees must be impartial. They must consider the needs of each beneficiary and have a duty to manage the Trust assets in the best interests of those beneficiaries in accordance with the terms of the Trust deed or Will. Trustees must avoid being in a position of conflict between their duties to the Trust and its beneficiaries.

Trustees are accountable to beneficiaries. They must keep proper accounting records and may be required to give beneficiaries information and explanations as to the investment of and dealings with the Trust property.

A breach of trust by a trustee can mean he or she is personally liable to the beneficiaries for any loss caused, particularly if it was an intentional breach of trust, dishonesty or negligence that caused loss. If a trustee can demonstrate that he or she acted honestly and in good faith and that the breach of the terms of the Trust was unintentional on their part, that trustee would not ordinarily be liable to the beneficiaries for the consequences of their breach.

When a Trust enters into a contract with a third party the trustees will typically be personally liable to ensure that the contract is completed. They may have a right to be indemnified from the assets of the Trust (meaning the liability they incur will be paid for from the Trust assets); however they will lose that right of indemnity if they act in excess of their Trust powers or in breach of their Trust duties. In addition to this, any right to be indemnified is only useful if the Trust actually has realisable assets. Recent case law has seen an independent trustee personally liable for Trust IRD debt, as the remaining trustees had fled the country. While the independent trustee had the right to be indemnified, there were no Trust assets left to cover the debt. The independent trustee paid the IRD debt using their own funds.

 

Buying a vehicle – is there money owing?

If you are in the process of purchasing a vehicle privately, it is very important to check that there is no money owing on it.

This can be done by conducting a search of the

Personal Property Securities Register (“PPSR”), preferably on the day you are going to pay for the car. The PPSR will confirm whether a ‘security interest’ is registered against the vehicle.

If there is a security interest registered, another person or company could seize your vehicle to pay off any debt relating to that security interest. Even if this debt was incurred by a previous owner, you could still lose your vehicle if the previous owner has failed to repay the debt in full before selling to you.

If there is money owing on the vehicle, the PPSR will record the details of the creditor, and you should ensure the debt is cleared before you buy. That way you can be sure you are buying your vehicle outright.

 

Snippets

McLeods Staff

Welcome back to our Practice Manager Emma Webb, who has now returned from maternity leave and is now proud mother of Mason, a brother to Paige.

Our Reception Team

You will all have been greeted by our friendly and knowledgeable reception team of Margaret McLelland and Shirley Rundle.

Margaret has a very pragmatic, can do attitude, she has lived in Kerikeri with her husband Graeme McLelland (partner at McLeods) for over 30 years.

Shirley Rundle is a rebound staff member and has spent many years working at McLeods in different capacities.  Shirley is originally from Barbados and enjoys craft, design and cycling outside the office.

All information in this newsletter is to the best of the authors’ knowledge true and accurate. No liability is assumed by the authors, or publishers for any losses suffered by any person relying directly or indirectly upon this newsletter. It is recommended that clients should consult a senior representative of the firm before acting upon this information.

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McLeods Lawyers — 21 Hobson Avenue, Kerikeri, Bay of Islands, New Zealand — Phone +64 9 407 0170 — Email law@mcleods.co.nz

The information on this site is not comprehensive legal advice. Please contact us for advice and information suited to your needs.