Some options for lessees
The damage caused to land by the recent weather events across New Zealand has raised concerns about the ongoing viability of leased land that has been impacted by these storms. Depending on a lessee’s particular circumstances, there are options in terms of relief from rental payments or, in the more extreme circumstances, termination of the lease.
If you are a lessee, the Property Law Act 2007 (PLA) and the law of frustration of leases may provide you with options when the land subject to the lease has been damaged or destroyed. ‘Frustration’ in the legal context means a contract that, subsequent to its formation and without fault of either party, is incapable of being performed.
Property Law Act 2007 implied terms
Section 218 of the PLA implies a list of covenants, conditions and powers in all leases. An ‘implied term’ is what is included in a lease by statute. These terms allow a lessee to seek relief from rent payments or to cancel the lease.
If the land you lease has been destroyed or damaged, the PLA1 may provide you with rent relief in proportion to the destruction or damage caused. Events that may lead to rent relief include floods and storms. If you are at fault for the event that caused the destruction or damage, such as being responsible for the cause of flooding, you will not be entitled to a rent reduction until the damage is repaired.
If your lease states that the land may be used for one or more specified purposes such as cropping, and during the term of the lease that land can no longer be lawfully used for cropping, you may be able to terminate the lease. An example would be if land was ‘red zoned’ so couldn’t be legally used for cropping any more2. As with rent relief, if you are at fault for the land not being able to be lawfully used for the specified purpose, you will not be able to cancel the lease.
Under the terms implied in all leases found in the PLA, you must keep the leased property in the same condition that it was in when the lease term began. However, this does not apply to reasonable wear and tear and events such as floods and storms, unless you are at fault. This means that if the land you lease has been damaged by flood and your lease is due to expire soon, on termination you are under no obligation to restore the land to the condition it was in at the beginning of the lease.
Your lease may include a clause that states any implied terms found in the PLA that are inconsistent with a specific term of the lease will not apply. Before signing a lease, you should review these specific terms to check for any inconsistency with the implied terms set out at schedule 3 of the PLA.
Force majeure
Some leases may include a ‘force majeure’ clause that covers what is colloquially referred to as ‘Acts of God.’ These include events such as floods, earthquakes or, more recently, pandemics. These clauses typically provide for the lease to be terminated, or provide that the parties’ obligations, such as payment of rent, under the lease are to be suspended for a period of time.
‘Frustration’ and rural leases
Recently, leases have been recognised for their contractual nature not just as an interest in land. ‘Frustration’, which is a remedy to cancel contracts, can now be used to cancel a lease.
When there is a radical change in circumstances outside of your control, such as a cyclone damaging the leased land, you may use the remedy of frustration to cancel the lease. Your lease will be cancelled effective from the date of the event. An example of this situation would be if a river changed its course (which did happen in Gabrielle), making it impossible to farm the land, you could claim the lease was ‘frustrated’ so should end from the date the river changed course.
When deciding if a lease could be cancelled via frustration it is important to look at the purpose of the lease and the length of the remaining term. To be successful in using frustration to end a lease, the purpose of the lease will need to be unable to be carried out during the remainder of the lease term. If your lease has a lengthy term remaining, it is less likely it will be frustrated by an event such as a storm that renders the land unusable for a short period of time.
So far in 2023 there have been a handful of severe weather events that have caused significant damage to leased land. As these climate change-related events become more common, we are likely to see frustration being more commonly used to attempt to cancel leases.
If you are unsure about the terms of your lease after Hale and/or Gabrielle, or any other the other significant weather events that have recently occurred in New Zealand, please don’t hesitate to contact us. We are here to help.
1 Property Law Act 2007, s4 of schedule 3.
2 Ibid, s10 of schedule 3.