For almost seven decades, the Landlord and Tenant Act 1954 has been a cornerstone of the relationship between commercial landlords and tenants in Auckland and Auckland. However, as businesses and property markets grow, the Law Commission is now questioning whether it remains fit for purpose.
The current law
The Landlord and Tenant Act 1954 grants most business tenants an automatic right to renew their lease when it ends, known as “security of tenure.” Here’s how it works in practice:
- Automatic right to renew: When a lease comes to the end of its term, the tenant normally has the right to stay and negotiate a new lease.
- Exceptions and contracting out: It is possible for landlords and tenants to agree to “contract out” of this right before the lease begins, meaning the tenant won’t have the automatic right to renew when the lease terminates.
- Involving the Court: If the landlord and tenant can’t agree on the terms of a new lease, they can ask the Court to decide. However, the landlord can refuse to renew in specific situations, such as wanting to redevelop the property.
- Scope of the Act: The law applies to most commercial leases except for certain types, such as tenancies of six months or less or agricultural leases.
Issues with the current law
While the 1954 Act has provided stability for businesses, it’s also becoming outdated. Key issues include:
- Outdated norms: The Act was written when long-term leases were the norm. In comparison to now, short-term and flexible leasing arrangements are more common, making some provisions not as relevant.
- Complexity: The regulations surrounding contracting out and Court applications can be complex and expensive for both landlords and tenants. Tenants are required to adhere to specific legal procedures to secure renewal rights, and failing to do so can result in losing these rights. On the other hand, landlords face procedural hurdles when opposing a renewal, such as the need to demonstrate redevelopment plans, which frequently lead to disputes and can incur significant costs.
- Imbalance: Some argue that the law’s focus on tenant protection doesn’t always consider the legitimate interests of landlords, such as redeveloping or selling their properties.
- Unclear coverage: The Act does not encompass all types of commercial arrangements, and its exclusions can result in disputes. For example, short-term leases of less than six months may not be covered by the Act, but issues arise when such leases are continuously renewed.
The Law Commission’s proposals
The Law Commission’s consultation aims to modernise the law, making it simpler and fairer for all involved. They are considering four main options:
1. Keep the current system with adjustments: The automatic right to renew would stay in place, but with updates to adapt new modern leasing practices.
2. Abolish the right to renew: This radical option would remove tenants’ automatic renewal rights altogether.
3. Opt-in system: Tenants would only have renewal rights if they specifically agree to them with the landlord when signing the lease.
4. Mandatory security of tenure: All tenants would automatically have the right to renew, with no option to contract out.
The consultation is also examining:
- Whether the categories of leases covered by the Act should be redefined.
- Ways to simplify and reduce the costs of the renewal process.
Why is this important?
For tenants, the right to renew offers security, enabling them to plan for the future. For landlords, flexibility is essential for managing their properties and raising their value. Achieving the right balance is crucial to ensuring a thriving commercial property market that benefits both landlords and tenants.
How to get involved
The consultation is open until 19 February 2025, and the Law Commission is eager to hear from anyone impacted by these laws – whether you’re a business owner, landlord, or advisor. This is your opportunity to help shape the future of commercial leasing.
It’s clear that the Act has served landlords and businesses for years, but it clearly needs modernising. Whether that be just changing it slightly or completely overhauled, the objective is to create a system that aligns with contemporary realities while promoting productive landlord-tenant relationships.
This article is for information only and does not constitute legal/financial advice. Please contact us for advice tailored to your specific position. Some of the content presented on our website has been generated with the assistance of Artificial Intelligence (AI). We ensure that all AI-generated content meets our high standards for accuracy and relevance.
