Entering into an Assignment of Lease

In the present economic climate, getting into (or climbing) the property ladder is tough. To get a deal across the line, purchasers are increasingly looking to alternative ownership options. One such option we commonly see is ‘co-ownership’ of property between family members. Taking matters a step further than the traditional parental guarantee of a child’s purchase, we are now seeing co-ownership between multiple relatives (such as siblings and their spouses, or parents and all/some of their children). This is despite that not all owners intend to live in or maintain the property. While this sounds good on paper, unfortunately these arrangements often proceed without the appropriate documentation and can go wrong. Untangling them can be complex where there has been intermingling of purchase funds, family members not being treated equally, deaths occurring and relationships souring over time. What to do if you want to buy property with other people? If you are buying property with others (often who are not your spouse or partner), you should have a written agreement to cover key aspects. The terms can cover: ownership shares and monetary contributions to purchase (including bank loans); who will live in the property; who will pay property expenses and maintenance; what will happen if someone wants to sell the property and others don’t; what happens on death of a party; and how will any proceeds of sale be distributed. This way, if a dispute does arise there will be a clear path forward to minimise any fall out (if possible). Property Sharing Agreements are used to document these arrangements, which are simple but effective. Purchasers can also consider whether funds should be gifted or loaned. Our property lawyers can assist you with this process. You can also read our article on Gift v Loan. If you are wanting to buy property with your partner or spouse, there are a different set of questions and documentation to consider (for example, whether you need a contracting out agreement). Our dedicated family team can advise you on all aspects of relationship property. See also our article on Contracting Out Agreements 101. When it goes wrong A recent example of an undocumented family property purchase is the case of Boot (As Executor and Trustee of Estate of Hart) v Stephens [2023] NZHC 3863. Parents (the Harts) helped their daughter and her husband (the Stephens) buy a property.  The title said that each couple owned a 50% share of the property, but in reality, the Stephens contributed more to the purchase price. They also paid for most of the property expenses in that time. Years later, both the Harts died, and their other five children wanted to sell the property so that 50% of the sale proceeds could be distributed to the children via their mother’s estate. The Stephens claimed that they were entitled to 67% of the property. Additionally, they had lived in the property for 17 years and did not want to sell. Ultimately, the Court held that, given the family’s intentions and contributions, the Stephens were entitled to 66% and could buy out the estate’s 34% interest. Regrettably, the dispute and litigation took a toll on the siblings’ relationships. If you own property with your family and there is a dispute There are a number of options to resolve a dispute if there is no written agreement, including obtaining Court orders to force a sale under the Property Law Act 2007. First and foremost, our experienced litigation lawyers can help you to resolve matters before Court through negotiation or mediation, if possible. If negotiations are not successful, we can guide you through the litigation process.

The Property Law Act 2007 (Act) provides a “code” governing the cancellation of a lease by the lessor (Landlord) for breach of covenant or condition by the lessee (Tenant). The “code” is contained in sections 244 to 246 of the Act (Cancellation Code). The codification of the lease cancellation provisions of the Act means that, on breach of a covenant or condition by the Tenant, the Landlord may only cancel a lease in compliance with the requirements of the Cancellation Code. Landlords and Tenants cannot contract out of the Cancellation Code. Any Lease containing terms which are inconsistent with the Cancellation Code, or which attempt to avoid the provisions of the Cancellation Code, are ineffective and unenforceable. The Cancellation Code provisions of the Act must be strictly followed if a lease cancellation is to be deemed lawful. A Landlord who fails to follow the statutory procedure when cancelling a lease is exposed to the risk that the Tenant challenges the cancellation and seeks relief against the Landlord. In this article we summarise the statutory notice requirements contained within the Cancellation Code. These requirements must be complied with by the Landlord when exercising a right to cancel a lease for breach by the Tenant. When a Landlord’s right to cancel may be exercised In the event of a breach of the lease provisions by the Tenant, the Landlord may exercise a right to cancel a lease by: applying to the court for a possession order of the land; or re-entering the premises peaceably and without committing forcible entry under section 91 of the Crimes Act 1961. However, before exercising a right to cancel, the Landlord must first comply with the Cancellation Code. Section 245 – Cancellation of lease for breach of covenant to pay rent If the Tenant is in breach of their obligation to pay rent then the Landlord may exercise a right to cancel the lease only if: the rent has been in arrears for at least 10 working days; the Landlord has served on the Tenant a notice of intention to cancel the lease for breach of the obligation to pay rent (s245 Notice); and at the expiry of the notice period specified in the s245 Notice, the breach has not been remedied. The s245 Notice must “adequately inform” the Tenant (or other recipient) of the following: the nature and extent of the breach; the amount that must be paid to remedy the breach; the period within which the breach must be remedied, being not less than 10 working days after the date of service of the s245 Notice (remedial period); the Landlord’s right to cancel the lease if the breach is not remedied within the remedial period; and the Tenant’s right to apply to a court for relief against cancellation of the lease and that the Tenant should seek legal advice on the exercise of that right. “10 working days” There are two periods of 10 working days referred to in section 245: the first is the period for which rent must be in arrears before the Landlord can exercise a right of cancellation for non-payment of rent; and the second is the minimum period that the Tenant must be given under the s245 Notice to remedy the breach. Importantly, section 245 allows the two 10 working day periods to run concurrently. Before exercising a right to cancel a lease under section 245, it is important that the Landlord check the specific terms of the lease. The statutory power to cancel a lease for non-payment of rent, or other breach, implied into leases by the Act requires that rent must be in arrears for at least 15 working days before the Landlord can exercise the right to cancel. However, if the lease contains an express provision entitling the Landlord to cancel the lease for non-payment of rent earlier than the implied 15 working day period, the express provision prevails. Most standard form leases specify a rent arrears period of 10 working days after the date the rent payment was due. Section 246 – Cancellation of lease for breach of other covenants If the Tenant is in breach of a condition or covenant in a lease other than the covenant to pay rent, for example failing to adequately maintain the premises or remove rubbish, the Landlord may exercise a right to cancel the lease only if: the Landlord has served on the Tenant a notice of intention to cancel the lease for breach (s246 Notice); and at the expiry of a period that is “reasonable in the circumstances”, the breach has not been remedied. The s246 Notice must “adequately inform” the Tenant of the following: the nature and extent of the breach; if the Landlord considers the breach is capable of remedy by the Tenant doing or stopping doing a particular thing, or by the Tenant paying the Landlord reasonable compensation, or both:            - the thing the Tenant must do or stop doing; or            - the amount of compensation the Landlord considers reasonable; the Landlord’s right to cancel the lease if the breach is not remedied within the expiry of a period that is “reasonable in the circumstances”; that certain defects in the s246 Notice do not invalidate the notice; and the Tenant’s the right to apply to a court for relief against cancellation of the lease, and that the Tenant should seek legal advice on the exercise of that right. “Reasonable in the circumstances” The s246 Notice must give the Tenant a period of time that is “reasonable in the circumstances” to remedy the breach. However, the Cancellation Code does not require the Landlord to specify in the notice what that period will be. To give certainty to both parties, we recommend a date be specified in the s246 Notice. What constitutes a reasonable period of time will depend on the circumstances of the matter and the ‘thing’ that the Tenant must do, or stop doing, to remedy the breach. Because of the potential ambiguity around what a reasonable period will be – what one party considers reasonable may not necessarily be considered reasonable by another – we recommend careful consideration be given to each matter and its specific circumstances. We can provide case-specific advice in this regard. “Adequately inform” Both sections 245 and 246 require that any notice given by a Landlord to a Tenant must “adequately inform” the Tenant of what the breach is, how the breach can be remedied (if at all) and, in respect of an s245 Notice, the date by which the breach must be remedied. The primary purpose is to give the Tenant an opportunity to remedy the breach and to put the Tenant on notice that, if the breach is not remedied, the lease will be cancelled. Care must be taken in preparing an s245 or s246 Notice to ensure that the notice is compliant with the Act and accordingly can be acted on immediately, if required, without the need for further notice or time to be given. Service As the Landlord’s right to cancel a lease for breach stems from the provision and expiry, without remedy, of an s245 or s246 Notice, it is imperative that any notice is effectively and validly served on the Tenant (and other relevant persons/parties if required), in compliance with the provisions of the Act. Failure to adequately serve a notice could result in the notice being unenforceable, or open to challenge by the Tenant, meaning wasted time and costs for the Landlord. We can provide advice on, and arrange for service of, s245 or s246 Notices to ensure compliance with the Act. Any notice issued under sections 245 or 246 of the Act must comply with the Cancellation Code, the notice must be correctly drafted and adequately served. A prudent Landlord should strictly comply with this ‘first step’ to ensure the swift and effective cancellation of a lease in order to save time and costs, and to minimise any loss going forward. We can provide advice in all areas of the Property Law Act and the Cancellation Code.

Due to the rising cost of living and interest rates on mortgages, it is not uncommon for families to advance money to their loved ones to help them on to the property ladder. Due to the natural relationship, these advances usually go undocumented. However, there are several factors that need to be taken into account before making such an advance. If you want to assist your child with a house deposit, you need to ensure the advance is correctly recorded. Are you expecting them to pay you back? If so, is the repayment with or without interest? Or is it a “no strings attached” gift? GiftMoney passed from parent to child is generally regarded as a gift, unless evidence proves otherwise. There is no obligation for a gift to be paid back by the recipient(s). Care needs to be taken where you are gifting money to your child and their spouse, such as to help them into a property. Should that relationship break down, the spouse would not necessarily be required to pay back any portion of the gift, therefore walking away with half of the gifted money. Gifting certificates are often required by a bank where a family member is advancing a portion of the purchase price. This is so the bank isn’t in competition with anyone to get their money back should the loan end up in default. There are ways to record a loan on terms that acceptable to the bank, while also protecting the advance. The document needs to be worded in such a way that doesn’t impede on the banks rights to be “first in line” if the loan defaults. Other considerations include whether this will affect any inheritance you may plan to leave. Are you intending for your child to receive less inheritance than their siblings due to this gift? If so, your Will also needs to be updated accordingly. LoanUnlike a gift, a loan is repayable on terms agreed at the outset. The loan can be interest free (or very low interest) and can be repayable “upon demand” rather than a specified date or loan term. However, as noted above, when banks are involved they will usually not allow a loan with interest or a specified repayment date, as this can affect the banks priority if the loan is defaulted. A loan provides protection in the scenario where you are advancing money to your child and their spouse. If this relationship later breaks down, you can “call up” the loan and have this paid back. You can then re-lend the money to your child once the separation is complete for another purchase, if you choose to. Again, estate planning comes in to play. Is the loan forgiven on your death (assuming it hasn’t already been paid back)? Or is the recipient required to pay back your estate? More considerations are needed when a Trust or other entity is involved, as well as further relationship property aspects not covered here. If you are unsure whether you should be making a gift or a loan, get in touch with us and we can assist you through the process.