Emily Merrill

Similar to the trend seen overseas, working remotely has become a more common and standard practice, which has impacted the way some businesses now operate in New Zealand. Accordingly, when tenants under commercial leases are reviewing their leasing requirements they may decide that they no longer require the same area of premises. This may lead to a tenant transferring their rights under a commercial lease to another party by way of an assignment or sublease. In order to determine which arrangement is best for your business and circumstances, it is important to understand the differences between the two. A sublease is where the tenant (commonly referred to as the sublandlord) transfers part or all of the tenancy under the sublandlord’s existing lease to a third party. It is important to note that the sublandlord retains an interest in the premises and there is no direct contract between the headlandlord and the subtenant. As a result, the sublandlord is still responsible for all lease obligations but the subtenant pays a contribution for the part of the premises that they sublease from the sublandlord. The subtenant is responsible to the sublandlord for the lease obligations under the sublease. This type of arrangement is particularly common when the sublandlord no longer requires all of the leased premises and wishes to recover some of the costs under the headlease. It is vital to ensure that the timeframe for the sublease arrangement does not extend beyond the term under the headlease. If you are considering subleasing part of your premises, the first step would be reviewing your headlease terms to see if there are any restrictions on the area or any parts within the premises that can or cannot be sublet. An assignment of a lease involves the new tenant (commonly referred to as the assignee) agreeing to take on all of the existing tenant’s (commonly referred to as the assignor) lease obligations. The transfer of the interest is for the remaining duration of the lease. While the assignment of lease terminates the assignor’s right to possession, the assignor’s liability under the lease commonly continues to the expiry of the current lease term unless provisions are included within the Deed of Assignment of Lease or negotiated with the landlord to provide otherwise. This liability also extends to any guarantors provided. However, the standard ADLS Deed of Assignment of Lease includes an indemnity from the assignee in favour of the assignor against any claims the landlord may raise against the assignor or the assignor’s guarantors. Once you have established which option is best suited for your business’s circumstances you need to ensure that the headlease allows for an assignment or a sublease to be granted and approach your landlord for their consent to the assignment or sublease. If you want to assign or sublease your commercial lease or have queries about your lease, please contact us to find out which option is best for you.

Are there benefits of converting cross lease titles to fee simple?Cross leases are a type of title which were favoured in the 1960s by developers as a means to complete a subdivision in a flexible, expedient and less costly manner when compared to fee simple subdivisions. Cross leases are made up of two components. Firstly, the parties to the cross lease all own an undivided share of the underlying land and secondly, a lease for party of the land/building. Each owner of the land may then erect a building on their allocated area/segment of the land. This building will then be leased back to them (often for a term of 999 years) and recorded on the record of title. The lease sets out the rights and responsibilities of each party sharing an undivided share of the underlying land, including a right of exclusive use and enjoyment for each building and usually the yard associated with that building. Generally the lease contains right and restrictions on what you can and cannot do on your property. The more significant restriction being the requirement to obtain your cross lease owners consent to any additions or alterations on the land and to any dwelling(s) on the property. If consent of the other cross lease owner(s) is granted, you will also need to update the deposited plan / flats plan shown on record of title in order to accurately reflect the dwellings, sheds or garages located on the underlying land which can be costly . If consent is not obtained or the flats plan is not updated or obtained prior to carrying out such works on your property, this may result in a dispute between owners or a defective title. This can affect the future on-sale of the property as under the latest ADLS Agreement for Sale and Purchase of Real Estate, a prospective purchaser may request that a new flats plan is deposited or you obtain consent from your neighbours for any unauthorised structures prior to settlement. While there are some advantages to maintaining cross leases, including having an element of control over what your neighbour / cross lease owner can and cannot do on their property, it may also be beneficial to convert your cross lease title to a fee simple title (commonly called freehold) as you will have more autonomy over your property to carry out alterations and additions and not be restricted by the terms within the lease. Due to this autonomy, fee simple titles are often viewed more favourable to prospective purchasers when selling your property and thereby potentially increasing the market appeal and value of the property. If you are interested in converting your cross lease, we recommend that you first discuss this with your neighbouring cross lease owners to see if they would also be interested. If all parties are interested, then converting your cross lease involves the following: Engaging a surveyor who will assess the underlying land as to the services and access to the dwellings. This stage may also include an assessment on whether separate services for sewage, water or drainage are required. A Resource Consent would then need to be applied for from local council. Depending upon the property and area, council may impose conditions and works needing to be undertaken prior to granting consent. Once consent is granted your surveyor will provide the plan to your solicitor, which your solicitor will then use to draft the relevant documents to complete the cross lease conversion, including obtaining mortgagee consent (if applicable), drafting easements, covenants and preparing all ancillary documents necessary. Once both your surveyor and solicitor have worked together to prepare the relevant documents and obtained the necessary consents, the documents and plans are lodged with Land Information New Zealand for separate fee simple titles to be issued for you and your neighbour. If you have any questions or would like any assistance with converting your cross lease, please get in contact with one of our property solicitors.

Health and Safety at Work (Asbestos) Regulations 2016 Asbestos was used in building products up until the 1990s due to its ability to resist heat, electricity and chemical corrosion. However, in New Zealand an estimated 170 people die of asbestos-related diseases each year making it the largest single cause of work related deaths. In response, the Health and Safety at Work (Asbestos) Regulations 2016 (“Regulations”) were introduced and came fully into effect on 4 April 2018. These regulations impose additional duties on Persons Conducting a Business or Undertaking (“PCBU”), including landlords, managers and tenants, in relation to work involving asbestos. This includes the obligation of managing and removal of asbestos risks to ensure the working environment is free of airborne asbestos fibres. Generally, if your building was built prior to 1 January 2000 it is more likely to have asbestos-containing material incorporated within it. Under the Regulations, a PCBU who knows or ought to reasonably know that there is a risk of exposure to respirable asbestos fibres in the workplace must ensure that all asbestos or asbestos containing materials (“ACM”) are identified. An ACM includes items such as concrete, stipple ceiling coatings and window putty. The first step in complying with the Regulations is to identify if asbestos is present within the workplace. Therefore, one should not merely assume that asbestos is not present. Instead to comply with the Regulations, a PCBU should organise an inspection by a suitably qualified consultant to identify whether asbestos or ACM is present within the property. If the survey results show that there is or there is likely to be asbestos, all PCBUs must ensure that a written asbestos management plan is prepared. As property owners we recommend that you drive this process in consultation with your tenant. As per the Health and Safety at Work Act 2015 (“HSWA”), to ensure that their legal obligations are met, a PCBU is obligated to consult, co-operate and co-ordinate so far as reasonably practicable with all other PCBUs who have a duty in relation to the same matter. This means that each PCBU will need a management plan. An asbestos management plan needs to include the identification of asbestos or ACM, the decisions made in relation to the management of the risk arising from asbestos, as well as the reasons for such decisions. The management plan needs to detail the procedure for detailing incidents or emergencies involving asbestos or ACM at the workplace and the workers who are responsible for carrying out work which involves asbestos. In relation to the workers responsible, the plan must also detail any information and training that has been provided to the workers, their responsibilities and role and any health monitoring of the workers that has been undertaken. Under the new Regulations, we recommend when purchasing a property, due diligence investigations include determining whether a survey or management plan has been conducted or put in place for the property. If not the purchaser should arrange an inspection by a suitability qualified consultant to identify whether asbestos or ACM is present within the property. The Regulations also will affect tenancy relationships. Under the HSWA, landlords must ensure that when work is carried out on their property, it is done in a safe manner without endangering workers or others, including tenants. While the obligation to identify and manage asbestos cannot be contracted out of, when leasing a property parties should consider whether the inspection cost is to be allocated to one party or shared. This means that each party should note what the lease obligations are in relation to who is responsible for the costs. PCBU’s must ensure that the asbestos management plan is kept up-to-date. In addition, the management plan needs to be revised if there is a review of a control measure, asbestos is disturbed or removed, the plan is no longer adequate, a workers’ representative requests a review or when five years have passed since the plan was last reviewed. Failure to comply with a review can result in fines upwards of $6,000 for individuals, and $30,000 for companies and other corporates. Therefore, we encourage those who own, occupy or manage a commercial property to ensure they clearly understand their responsibilities under the Regulations.