Rent reviews in commercial leases

A variety of clauses to suit different situations

Negotiating commercial leases can involve a significant amount of crystal ball gazing – particularly when some leases can last decades. As recent times have shown, the landscape at the start of a lease can be miles away from the situation at the end of the lease. One area where the shifting sands can bite for long-term leases are the rent figures. Without appropriate rent review clauses to adjust the rent, any landlord could find themselves with a vastly undervalued rental as the lease progresses.

Types of rent review

Not all rent review clauses are alike. There are various methods of calculating changes to rent, these include:

Reverse mortgages

Increasing in popularity

The current combination of increasing living costs, rising house prices and low interest rates has seen more than property-seekers signing up to home loans. On the other side of the coin, some older homeowners are seeking ‘reverse mortgages’ from their lenders in order to release the growing equity in their property.

What is a reverse mortgage?

A reverse mortgage is a lending structure that allows you to access the equity you have accumulated in your home or other property. With a reverse mortgage, you borrow money from a lender using your existing home as security in order to, for example, supplement your living costs or complete renovations rather than for the purpose of acquiring a new property.

Property Briefs

Is your property fully insured?

There are potential insurance risks for properties that have shared areas, for example multi-storey town houses, semi-detached homes which share a party wall, and cross lease properties which have carports, the Insurance Council of New Zealand has warned.

If your property does not have a body corporate that manages insurance cover for the whole property, and if you and your neighbours have different insurance providers, you may find that any shared property such as carports, party walls and roofs will not be covered by your insurance.

Succession and trust law changes

Extension of Māori Land Court jurisdiction

A significant change to the succession laws relating to Māori land [1] came into force on 6 February 2021 (Waitangi Day).

Te Puni Kōkiri states that the amendments to Te Ture Whenua Māori Act 1993 are intended to better support whānau to succeed to their land by:

Trustees’ expenses

Should be reimbursed, but no need for extravagance

When trustees incur expenses, they are not expected to be out of pocket in carrying out their responsibilities. Trustees are entitled to use trust money or to get a refund from the trust fund if they incur expenses in carrying out their duties. Trustees’ expenses, however, must be fair and reasonable. A recent case shows why it is also important to be sure that you can trust your trustee not to take advantage of the right to claim expenses.

Carrying out a trustee’s obligations and responsibilities can take up much time and some expenses can be incurred in doing this. Trustees are not usually entitled to charge a fee for their time, unless the trust deed or will allows them to do this. The trustees are, however, at least entitled to have their expenses met from the trust fund, provided the expenses are fair and reasonable. If the trustee has to pay for anything personally, the trustee is entitled to be reimbursed.

New trusts legislation now in force

Disclosure of trust information to beneficiaries

The Trusts Act 2019 came into force on 30 January 2021. One major topic of discussion arising from the new Act has been the provisions governing disclosure of trust information to beneficiaries. 

The purpose of the new disclosure provisions is to ensure that beneficiaries have sufficient information to enable the terms of the trust and the trustees’ duties to be enforced against the trustees. Historically, in some trusts, disclosure of information has been very limited, and beneficiaries often do not find out they are beneficiaries, or that they are entitled to trust information, for many years. This makes it difficult for beneficiaries to know who to contact, or what kind of information to request, to ensure the trustees are doing their job properly.

Raising capital for your business

Some options for offering shares

The Covid pandemic has paved the way for innovation, and many New Zealanders spent 2020 investing time and money into their new or existing businesses.

When raising capital to grow their business, however, many business owners find themselves limited by the size of their wallet. While interest rates are currently at an all-time low, trading banks’ lending terms are arguably the strictest in recent memory.

Having a puff at work

Vaping now treated the same as tobacco smoking

New Zealand laws have finally caught up with vaping (also called e-cigarettes) that have, for some time, enjoyed freedom from the country’s strict tobacco regulation.

Since 11 November 2020, however, all vaping products and behaviours must now be treated the same as for tobacco products and smokers. All businesses and employers should be aware of the changes to SmokeFree legislation; for retailers of any vaping-related products these changes are especially important.

Business briefs

Covid relief key expiry dates for businesses in 2021

In 2020, the government introduced a raft of legislation to provide temporary relief for businesses struggling to navigate the effects of the Covid pandemic. Some relief measures, such as the safe harbour for company directors, have already expired, while others will expire this year unless they are renewed. The key expiry dates for 2021 that you should be aware of are:

• 26 March: Landlords and tenants of commercial premises who could not agree on rental arrangements during the 2020 lockdown period have until this date to access the government’s subsidised arbitration or mediation service to resolve the dispute.
• 31 March: Measures allowing companies, incorporated societies and other entities to hold meetings online and make temporary exceptions to their rules.
• 15 May: Provisions allowing for electronic signatures when signing security agreements that contain powers of attorney.
• 22 September: The requirement for landlords to give 30 working days’ notice instead of 10 working days’ notice to end a commercial lease where the tenant fails to pay rent.
• 31 October: The cut-off date for businesses to enter into the government’s business debt hibernation scheme has been extended until 31 October 2021.

The scheme allows businesses to have a month of protection from most creditors enforcing their debts, and a further six months’ protection if their creditors agree.

Investment in farming

A focus on syndicated farm investments

With the current low interest rate regime looking set to continue for some time, investors are increasingly looking at ways to generate a reasonable income either for their retirement or for other forms of saving.

Recently, commercial property syndicates have come back into fashion. Their popularity is based on the return that they are able to provide to investors, notwithstanding the risks inherent in that sort of investment.