All too often an employer may claim it had fair grounds for the actions it took to dismiss or discipline an employee, but did so too quickly or used a one sided process, and in doing faces a difficultly in justifying its actions before an Employment Relations Authority.  In this article James D Turner, Partner, McVeagh Fleming lawyers, looks at the opportunity for an employer to consider bringing a counterclaim and 2 recent cases holding employees responsible for their conduct.

Where an employee fails or refuses to comply with clear obligations under the employment agreement (or statute), and is then sanctioned or dismissed, that employee may easily bring a personal grievance and seek redress through the relatively quick and inexpensive mediation and investigation procedures. Those with deserving claims often succeed with an award of compensation. Those employees with less than deserving claims may also seek compensation, and the employer is often faced with making a settlement payment at mediation or incurring the expense of attempting to justify its acts or omissions before the Authority.  It is often cold comfort for an employer to justify itself at an investigation hearing, when it will spend hours of non-productive time to investigate the issue, then prepare for and attend, often incurring legal fees in doing so, whilst still running a business and employing staff.

An employer also runs the risk of being caught by the nebulous concept of “fair process” where its decision to dismiss or discipline was otherwise warranted.   Fair process generally requires an employer to communicate the relevant policy to its staff, consultation, fairly implementing and applying that policy, openly investigating any transgressions, asking for an explanation prior to any corrective action, with an proper opportunity given for improvement or to comply before any dismissal.  In practice it is not easy to apply it with perfection.

However there is the opportunity for a company to consider bringing a counterclaim against an employee where that person has acted in a less than honest or bad faith manner or has engaged in conduct that causes loss, where it is reasonably foreseeable that the employer will sustain loss by such conduct. Recently the Authority determined an employee was in breach of the terms of his employment agreement including his implied obligations of trust and fidelity, failing to disclose a conflict of interest, failing to follow understood procedures for engaging contractors, misuse of funds, abuse of delegated authority, fraud, and an inference of dishonesty. The Authority ordered that the employee pay over $40,000.00 to the employer (ARC v Tilialo)

The Employment Relations Act 2000 (“the Act”)) also expressly requires both parties in the relationship to act in good faith towards one another. Often an allegation is made against an employer that it has acted without “good faith”, but in some circumstances there is the opportunity for an employer to raise a counterclaim by focusing on the employee’s breach of his or her good faith obligations.

The Employment Court has also recently overturned a decision of an Authority including its conclusions on “fair process” and awarded compensation to the employer. The Authority had earlier held that the dismissal was unjustified because of the process that the company had used was unfair.  In Masonry Design Solutions Limited v Bettany the Court was not convinced that the clear overuse of the internet by an employee could justify the dismissal because the employer had not given clear guidelines to the employee on what reasonable use was permissible.  The same point was upheld with respect to overuse of the company’s cellphone.  However the Court thought that persistent time keeping failures, following a warning about them, was sufficiently serious misconduct.

The company also counterclaimed that the employee’s performance of his work was of such poor quality that the work had to be redone and to a significant cost, which would have been foreseeable. The Court upheld this claim and reviewed the figures closely and awarded $12,000.00 to the employer to be paid by the employee, rather than the actual $18,000.00 which was claimed.

In many cases we have defended employees from counterclaims by employers where there is little or no evidence to support such claims.  If, however, an employer acts fairly and reasonably throughout, keeps records of the policy guidance given to staff, and of the warnings issued, and where it can quantify the loss resulting from any breach, misuse or misconduct, where that loss is a foreseeable consequence, then that employer may be successful in obtaining an award for a counterclaim for those losses.

These changes will affect both employers and employees. Changes include:

• Extending the 90 day ‘trial period’ to all employers;
• Giving employees the choice to cash in their fourth week of annual leave, on agreement with their employer;
• Allowing employees to negotiate the transfer of a public holiday to another day;
• Adjusting the calculation of Relevant Daily Pay with a new equation being Average Daily Pay;
• Checking for sick leave by medical certificates for any day of absence; and
• Doubling the penalties for breaching the ERA or HA.

It is now a good time to review your employment agreement and ensure that it continues to comply with the new legislation, especially given the penalties for non-compliance with either the ERA or HA will double from $10,000 to $20,000 for companies and $5,000 to $10,000 for individuals!

How the changes affect you

Make sure that you are aware of, and plan for new developments allows you to take advantage of the changes, and to help you avoid problems down the line.

How we can help

We do a lot of great work in employment law. If you want to make use of the changes then we recommend that you contact us for a ‘health check” of your existing employment agreements and to review and update them to add new provisions and to keep them current. Our employment team at our North Harbour Office welcomes your enquiry.

The leasing market is ever changing.  Many would argue the current economy to favour tenants – there are a myriad of vacant properties currently available, and a definite lack of (quality) prospective tenants available.  Many tenants are looking to down size, if not liquidate, leaving landlords (“LLs”) in the unenviable position of being forced to consider short term and stop gap solutions for their own cash flow purposes.  Enter the commercial real estate agent, armed with an agreement to lease (“ATL”) ….  but beware, both LL and tenant, once signed the ATL will legally bind you to the terms specified and your lawyer will be unlikely to be able to re negotiate your lease.  It is important – if not critical – therefore, that both sides fully consider the ATL in detail before signing such.  A few key considerations are as follows:

• Parties: It is critical that the parties in the ATL be correct, so tenants should confirm their structure (and available personal guarantees) before negotiations commence.  Often in the fine print all directors and controlling shareholders will be required to be personal guarantors.

• Premises: What is being leased?  Where are the carparks?  Does the tenant have a right to use common areas, and if so are they included in the assessment of annual rental?  What is the measurement of the premises and is annual rental determined on a square metre basis?  Strangely enough, the premises description is one of the most commonly neglected items set out in an ATL.  If at all possible, attach highlighted plans for certainty.

• Term: LLs prefer long …  tenants prefer short, generally they end up somewhere in the middle.  Tenants – it is very hard to escape a lease once the ATL has been signed, so negotiate hard for a short lease term and lots of short rights of renewal.  LLs – try and bind your tenants to reasonable term leases with regular rent reviews (either to market or CPI), and avoid limiting or relinquishing tenant liability in the event of assignment.

• Rent and Rent Reviews: Gross or net rental (ie inclusive or exclusive of outgoings)?  How often are the rent reviews, and can rent be decreased upon review?  Set out in full the means of calculating new rental upon review to avoid argument later.  Don’t be afraid to include examples in the ATL of how rent would increase if CPI rose by, say, 3% – make it easy for everyone to understand (and later interpret) what has been agreed.  LLs – specify that rent is payable by automatic payment.

• Outgoings: Almost always glossed over by agents, but one of the most contested issues between LL and tenant.  Work through the outgoings schedule and delete those not agreed to be payable by the tenant.  Again, insert lengthy additional clauses to clarify exactly what the tenant will be liable for each year.  Who is responsible for a major one off maintenance job to the premises, or body corporate sinking fund contributions?

• Legal Costs: Generally in the fine print you will find the tenant is liable for the LL’s reasonable legal costs of preparation of the deed of lease and any document necessary to evidence a renewal/rent review.  Tenants – are you happy for this to be the case?  Negotiate – often LLs will agree that each party bears its own legal costs, particularly if the tenant is sound and desirable.

• Special Conditions: If in doubt, include conditions in the ATL giving you the ability to withdraw, ie due diligence or finance conditions for the tenants, or all encompassing directors approval or solicitors approval conditions for either party.  If you can’t review the ATL with your lawyer before signing, give them the ability to negotiate after the facts by making the ATL conditional on their approval; don’t hamstring your lawyer and expect them to be able to run for you later.

Often ATL are negotiated and signed without legal input, under the eyes of a commercial real estate agent on commission.  Be careful; be sensible; and if at all possible, consult your lawyer before signing an ATL.

The Unit Titles Act 2010 has now replaced the Unit Titles Act 1972.  The old Act was unable to properly provide and cater for the myriad of significant multi-storey unit title developments built in the last two decades, and the new Act seeks to address the shortcomings of the old regime.

A few of the key points and changes under the new Act are as follows:

• Major decision making by a body corporate will now require 75% member agreement as opposed to unanimous agreement under the current Act.  This should prevent situations where a small number of proprietors have been able to stand in the way of decisions the overwhelming majority have been in favour of.

• Owners will not be able to vote unless their levies are paid.

• Relief will be available to minority voters who vote against a resolution, if it can be shown that the passing of the resolution will be unjust or inequitable to the minority. The same applies to a majority voter who votes in favour of a resolution (but which fails to meet the 75% threshold), if they can show that injustice or inequity will result from the failure of the resolution to be adopted.

• The onus on the body corporate to keep and maintain common property in good order now extends to situations where problems relate to two or more units (not common property). The key benefit is that defects will now be attended to before they become major issues which affect more proprietors than they otherwise would under the old regime where proprietors had no obligation to act fast and avoid such situations.

• The introduction of a fairer unit entitlement system which seeks to address situations where certain proprietors are paying a levy greater than they should, having regard to the utilities they use in the building.

• ‘Sub-body corporates’ will be used for developments which have more than one use. This will ensure that each body corporate can focus on a core area of the development as opposed the previous situation where an all-encompassing body corporate could lead to inequity in treatment.

• Body corporates are required to establish both long-term plans and maintenance funds with a view to protecting the long term interests of the development.

• Disputes can now be heard by the Tenancy Tribunal which should be far less costly and time consuming than applications to the High Court as required under the old regime.

• New disclosure requirements mean that purchasers of units will now be able to request, and vendors will be obliged to provide, information regarding the unit such that any purchaser has full disclosure.

The above is only intended to be a brief overview of some of the key changes which have now come into effect.  Let us know if we can be of assistance regarding your specific circumstances.

The following is an outline of all of the services we will provide to you during the course of your sale.  This list is intended to let you know exactly what is required and to provide you with piece of mind that the service we are providing is of the highest standard:

1. Meet/speak with you to discuss your planned sale.  Given the opportunity (ie if we are instructed before you have entered into an agreement) we will offer you advice as to those conditions to be included in the agreement for sale and purchase, to ensure you have all of the information required to decide whether to proceed.

2. Title search:  We will obtain a certificate of title from Land Information New Zealand for the property to confirm the legal description of the property being sold and to ascertain whether there is a mortgage, caveat or other encumbrance which will affect your right to sell.

3. Executed agreement:  Once the agreement for sale and purchase has been signed by both vendor and purchaser, we will provide you with a reporting letter setting out the key points of the agreement and noting the key dates.  If there are any conditions to be satisfied we will note who is responsible to satisfy such conditions.

4. Deposit:  If the agreement calls for payment of a deposit we shall ensure it is paid.

5. Agreement unconditional:  We will communicate with the purchaser’s solicitor to determine whether the conditions in the agreement have been satisfied.

6. Mortgage discharge:  We will communicate with your mortgagee to obtain a discharge of your existing mortgage(s) in order that we are able to transfer legal title to the purchaser upon settlement.  We will also obtain repayment figures from your mortgagee to repay all debt owing upon settlement.

7. Rates and water:  We will contact your local District Council to obtain a rates assessment for your property and to order a special water meter reading if applicable for settlement date.  We will then apportion rates as at settlement between vendor and purchaser.

8. Settlement statement:  We will prepare a settlement statement calculating the amount remaining due from the purchaser to complete the purchase of your property.  We will also advise the purchaser’s solicitor as to our settlement requirements to ensure we receive cleared funds available for disbursement to you.

9. Transfer documentation:  We will prepare the transfer authority and review the notices of sale received from the purchaser’s solicitor to ensure they are in order prior to settlement.  We will then contact you to arrange execution.

10. Settlement:  On settlement day we will:

1. Confirm we have received the discharge of mortgage documentation and repayment figure from your mortgagee;

2. Contact the purchaser’s solicitor to advise we have the necessary executed transfer authority and are in a position to settle;

3. Confirm payment of the settlement funds into our trust account in compliance with our settlement statement; and

4. Arrange repayment of any mortgages.

5. Advise you that settlement has been completed and disburse the settlement funds to you (note: depending on the time of day settlement actually occurs, settlement proceeds may not be disbursed on settlement day).

6. Coordinate possession.

11. Post settlement:  Following settlement we will provide you with a letter confirming the date of settlement and enclosing our statement and invoice.  We will also pay any rates outstanding in accordance with our settlement statement and send notices of sale to your local District Council.  If a special water meter reading was carried out on settlement date, we will hold a portion of the settlement funds on trust in order to pay that invoice when received (the balance to be disbursed to you in due course).  Our fee is generally deducted from the settlement proceeds and accounted for in our statement.

The above outline may vary slightly depending on your personal circumstances.  If you have any queries throughout the sale process, please do not hesitate to telephone to discuss.  It is our goal to ensure you understand and remain fully aware of what is happening throughout the sale process.

The following is an outline of all of those services we will provide to you during the course of your purchase.  This list is intended to let you know exactly what is required and to provide you with piece of mind that the services we are providing are to the highest standard:

1. Meet/speak with you to discuss your planned purchase.  We will offer you advice as to those conditions to be included in the agreement for sale and purchase, to ensure you have all of the information required to decide whether to proceed.

2. Title search:  We will obtain a certificate of title from Land Information New Zealand for the property and will review all relevant encumbrances registered against the title.  We will advise you about any encumbrance which may affect your decision to purchase the property.

3. Executed agreement:  Once the agreement for sale and purchase has been signed by both vendor and purchaser, we will provide you with a reporting letter setting out the key points of the agreement and noting the key dates.  If there are any conditions to be satisfied we will note who is responsible to satisfy such conditions.

4. Finance:  We will discuss with you how you wish to finance your purchase.  Depending on whether your purchase is intended as an investment property or the family home, we will advise you as to the best structure for your purchase.  Once finance has been approved, we will contact your financier to obtain the necessary loan documents and will complete such along with a mortgage of the property.  We will arrange with you to sign the mortgage and loan documents (observing the Credit Contracts Act requirements) and then return the loan documentation to your financier in anticipation of settlement.

5. Insurance:  We will discuss with you the insurance requirements for the property being purchased and if necessary contact your insurance company to obtain a certificate of currency of insurance (noting your financiers interest as mortgagee and your ownership of the property).  It is important that your property be insured prior to settlement date.

6. Transfer documents:  Once the agreement for sale and purchase has been declared unconditional we will prepare a transfer authority and notices of sale properly identifying the property being purchased.  These documents will be forwarded to the vendor’s solicitor to arrange execution thereof.  Upon settlement, they will be forwarded to Land Information New Zealand and the local Council notifying such entities of the change of ownership.

7. Settlement statement:  We will review the settlement statement prepared by the vendor’s solicitor and ensure the amounts and apportionments are correct.

8. Settlement:  On settlement day we will:

1. Confirm that the finance monies have been deposited into our trust account in anticipation of settlement;

2. Obtain a guaranteed search of the certificate of title to the property to ensure you will obtain legal title;

3. Contact the vendor’s solicitor to advise we are in funds and in a position to settle;

4. Confirm arrangements with regard to the keys and possession following settlement;

5. Review the transfer documentation to ensure legal title will pass to you;

6. Complete settlement by transferring the purchase money into the vendor’s solicitor’s trust account; and

7. Telephone you to confirm settlement has been completed and that you are entitled to possession to the property.

9. Post settlement:  Following settlement we will provide you with a letter confirming the date of settlement and enclosing our statement and invoice.

10. Title:  Following settlement we will arrange registration of the transfer documentation with Land Information New Zealand.  Upon receipt of the updated certificate of title we will forward you a copy evidencing that you are now the legal proprietor of the property.

The above outline may vary slightly depending on your personal circumstances.  If you have any queries throughout the purchase process, please do not hesitate to telephone to discuss.  Purchasing a residential property is the biggest investment the average New Zealander enters into and it is our goal to ensure you understand and remain fully aware of what is happening during the purchase process.

Trusts are a well recognised and accepted part of the New Zealand legal and economic landscape. They are in wide use and application primarily as vehicles for asset protection. This popularity extends to both domestic and off-shore usage.

There is an increasing acknowledgment of New Zealand as a safe and reliable location for an offshore trust. The reasons behind this include New Zealand being internationally acknowledged as having a good reputation and standing as an OECD member. The advantages which are presented by a New Zealand offshore trust have been a part of the New Zealand legal framework and are the result of the government’s deliberate policy choice rather than a loophole.

The State of Trust Law: Legislation and Case Law

New Zealand is a Commonwealth country and a member of many international treaties. A correctly structured New Zealand offshore trust may be able to take advantage these treaties and numerous Double Tax Agreements. By establishing a New Zealand offshore trust the trust will also have trans-national effect and recognition in countries which have common law heritage.

New Zealand’s trust law is well established from a mix of both statute and case law which has its foundations in the common law. These principles are clearly understood and readily applied by the Court when required giving the law the required degree of stability and certainty. However with laws constantly developing and changes in personal circumstances to be considered, trust law in New Zealand is also regarded as being both modern and flexible which allows for these issues to be taken into account should the need arise.

The Advantages of a New Zealand Foreign Trust

There are many advantages to establishing a New Zealand based trust. Trust law in New Zealand allows for wide discretionary powers for trustees including the power to add and remove trustees and beneficiaries, vary the trust deed and, due to its discretionary nature, the ability to choose how and when to make distributions to the beneficiaries while still providing substantial protection for the beneficiaries’ rights. This makes for a very controlled but flexible succession and estate planning option.

New Zealand is not seen as a “tax haven” country so the use of a New Zealand trust is generally not perceived as a means to avoid tax or as being tax aggressive.

Taxation

New Zealand’s foreign trust regime enables a person who is not a tax resident in New Zealand to establish a New Zealand trust with a New Zealand resident trustee and for that trust to hold offshore assets and to derive income from outside New Zealand but have no New Zealand income tax liability.

The income tax liability of a trust in New Zealand is determined by whether or not a settlor is or has ever been a tax resident in New Zealand. New Zealand income tax legislation provides that foreign sourced income derived by a New Zealand resident trustee is exempt income if the settlor of the trust is not resident in New Zealand. Accordingly, a New Zealand established trust with a New Zealand trustee but no New Zealand resident settlor and no New Zealand sourced income will have no New Zealand income tax liability.

A New Zealand foreign trust can hold offshore property and derive offshore income. Provided that no income has been sourced in New Zealand, a trust has no New Zealand tax obligations and is not required to file an annual income tax return in New Zealand.

A trust would need to have a New Zealand resident trustee. Ideally, the New Zealand trustee would be a New Zealand incorporated company used for this purpose. With regard to compliance issues, such a corporate trustee would need to comply with the usual filing requirements of the Companies Office in New Zealand and would need to file tax returns. The company itself would not own any assets or derive any income and so no disclosure of the trust assets and income would be required. In order to avoid audit requirements under relevant legislation, the shareholder of the corporate company should be a New Zealand resident. Another relatively minor compliance issue is that the trustee company should also have a New Zealand resident director.

The New Zealand situation is rather different in that it taxes a trust by reference to the residence of the settlor rather than the trustee. Therefore, any income tax liability of the New Zealand foreign trust would arise in the country in which the income is sourced. If the source of income is in a country with which New Zealand has a Double Tax Agreement, it could possibly be subject to a concessionary agreement which recognises the trust by reference to the trustee rather than the settlor. In any event, it would be prudent for the settlor of a New Zealand foreign trust to check the impact of the domestic tax laws of the country in which the settlor is tax resident.

New Zealand is coming out of a recession and many people believe this is a great time to set up a business. Limited liability companies are one great structure in which you can do business, because personal liability for losses is limited and company tax will soon be set at 28%. Generally, the power to appoint directors and control the company rests with its shareholders. Shareholder relations are much like marriage, you and your best friend may think you agree on everything now, but once the honeymoon period is over, sometimes that relationship may sour.

This article is aimed at anyone who is considering setting up a small or medium sized company where you are dependent on more than one shareholder agreeing things now or in the future. You may handle the day to day running of the business but it is important to recognise that your fellow shareholders have rights too (and can be right pains!). Spending money up front when you start the company to formally agree how things will work not only gives you a useful set of management tools (the “rules”) but can save you massive heartache and enormous sums spent arguing if the relationship turns to custard.

The relationship between shareholders is generally regulated by the Companies Act 1993 and this may be modified by the company constitution. However, it is important to note that the constitution is registered with the Companies Office and becomes publicly available for searching. Because of the need to deal with matters confidentially, a shareholders’ agreement (a contract between shareholders that can be separately enforced by them, rather than having to involve the company) is a sensible option.

Further, shareholders can agree matters as an enforceable contract between them that may not be permissible for the company (a separate legal person) to agree. This article outlines a few reasons why you should put in place a shareholders’ agreement – or at least consider it very seriously.

Ability to Exit

Your best friend gets run over by a bus and his/her evil mother in law now holds 50% of the shares in your company. What can you do about it? Conversely, if you die, your family may be stuck having to participate in the running of your business should something happen to you and have no way to exit while your other shareholder tries to “call the shots”. What happens if things get “ugly” and one or more of your fellow shareholders wants to end the business relationship with you and/or the other shareholders? How do you get these people out without wrecking the relatively smooth operation of your business (which hurts in dollar terms for everyone).

The answer is to ask these questions at the outset and record what everyone wants to happen in a shareholders’ agreement. You can pre-agree what happens when your fellow shareholders die or are disabled. You can also look at insuring each other for the value of the shares so insurance will purchase the shares for you and pay the price to the estate all at the same time. To assist “exits” for all parties, you could (for example) pre-agree that the remaining shareholders get a two year loan to buy your shares from the exiting shareholder (or their estate). This could be secured over the shares in question and tied to a bank interest rate, or be on any other terms you determine will work for all of you.

Agreeing these things in advance could prevent (for example) an executor or relative of a shareholder with no business experience suddenly stepping in and trying to call the shots – or sitting in the company, doing nothing and getting a big chunk of the rewards. It prevents your ex-best friend selling shares to your major competitor because you didn’t have the funds on hand to buy when they first offered them – or where you could only pay fair value, but not the “market” price the competitor is offering.

If someone exits, a good constitution can provide that the exiting party is first required to sell to the remaining shareholders first – and you can pre-agree the terms at which the price is determined. If you want to get really fancy, however, and go into even more detail or pre-agree a whole bunch of very useful things, a shareholders’ agreement can help you go much further than a constitution. If you fully record everything that you, as shareholders have as a vision for the company, and with assistance and ideas from your friendly legal advisers (that’s us), you can avoid a whole variety of potentially very messy (not to mention costly) arguments and problems for you as a shareholder and the company as a business.

The Ground Rules

It is useful at the outset to record everything you are agreeing to right at the beginning – including how you change that agreement (whether by majority, unanimity or some other percentage). The ground rules remind you what direction you all envisaged you would take.

If can be helpful to record who has agreed to contribute what. For example, if one shareholder is introducing intellectual property, one time and effort (labour) and one funding, it is a good idea to record exactly what is expected to be contributed by each shareholder. It is useful to say what will happen if the shareholder (who may also be a director) cannot meet those requirements. Further, if the shareholders (or key people associated with them) are to take an active role in the company, it is useful to set out what that role will be, at least in general terms. Clear ground rules keep everyone focussed on the “vision” for the company and help avoid disputes. They should extend to any matter that shareholders consider are important or critical to the health and future of the company and their own interests as shareholders. Examples are dividend policy (re-invest them in company growth or pay everything out!), funding (from the bank, and/or from shareholders – and if from shareholders, on what terms?) and other critical issues for the company (keeping company information confidential is almost always in this category). All of these things avoid disputes, or help manage them since all the shareholders have a clear appreciation at the outset as to what their obligations are.

Deadlocks & disputes

Good “rules” (in a constitution and shareholders’ agreement) help avoid disputes. Where disputes happen that can’t be easily resolved (including situations where someone refuses to believe there is a problem), you can pre-agree a format that requires you to sit down and try and discuss and resolve the problem one shareholder has, or a dispute between all shareholders. This may include a pre-agreement on mediation or arbitration. Clear ground rules as to how disputes will be managed can often help overcome the issues that can otherwise “float around” and not get faced by the company or its shareholders, often at some cost. Where someone does something that you have agreed is a “default” (which can be a whole raft of things, such as giving company confidential information to a competitor, or not working for pre-agreed hours etc), the agreement can provide that the defaulting person has to sell their shares to the other shareholders at a pre-agreed value (which may include a discount for the default). As a contract, a shareholders’ agreement is enforceable in court by shareholders and hard to resist. If you genuinely have a 50/50 deadlock on important operational matters, with no-one at “fault”, then there are not many options, but you can agree what happens in this instance (e.g. one of you buys the others out, or you place the company into voluntary administration, or liquidation). Often looking at a bleak scenario (like liquidation, which can lose value for everyone) can help force a resolution of the dispute.

Prevention costs less than a cure

Ending up in business with someone you don’t like, or being involved in an ongoing “deadlock” or dispute on a matter with no clear way to navigate or manage that problem can cause a lot of upheaval for a company and lose enormous value, not to mention the potential cost of a “legal” fight among shareholders. As you can imagine, we don’t turn down the litigation work associated with these disputes. However, we see a lot of situations that may have been avoidable with good forward planning. We prefer to help you avoid the potential arguments and litigation at the outset, since your healthy business is a healthy long term client for us!

For further information, feel free to call Andrew Knight, John Woolley or Rowena Boereboom on 377 9966 at Auckland; James Varney or Brandon Cullen on 415 4477 at North Harbour.

We can assist you to follow the correct legal process to re-enter the property and to help you to avoid potentially costly litigation from the tenant alleging that you failed to cancel the Lease correctly.

Cancelling a Lease for non-payment of rent

You can only cancel a Lease if:

• The rent is at least 10 working days in arrears; and
• You have given the tenant notice of your intention to cancel the Lease if the tenant does not pay the outstanding rental within the specified period in the Notice (which cannot be less than 10 working days after you serve the Notice).

Cancelling a Lease for other breach

You can give the tenant notice of your intent to cancel the Lease if they do not remedy some other breach by the date given in the notice (which must be reasonable in the circumstances, depending on the breach and what action is required in order to remedy the breach).

What specifics must be included in your notice to cancel a Lease

• Inform the tenant of the nature and extent of the breach;
• Outline what must be done to remedy it;
• Advise the tenant of your intention to cancel the Lease if the breach is not remedied within the specified time frame;
• Notify the tenant of their right to apply to the Court for relief against cancellation; and
• Advise the tenant to seek legal advice.

You are entitled to send this notice as soon as the rental is in arrears.

You should give a copy of the notice to each tenant individually as well as each guarantor together with any mortgagee or receiver, any sub lessee, and to any mortgagee or receiver of the sub lessee where you know these parties.

If the tenant fails to comply with the notice served on it and you want to re-enter the property then you must first notify the tenant in writing that you cancel the Lease, that you will be re entering the property and for the tenant to remove their property in the timeframe allowed under the Lease.

What happens once you have cancelled a Lease?

If you have cancelled a Lease then you may peacefully re-enter the property. If that is not possible then you will need to apply to the Court for an order for possession. The key pitfall to avoid is re-entering before the cancellation notice is given and re-entering but not in a peaceful manner.

Peaceful re entry

“Peaceful re-entry” means (as you would expect) that you cannot forcibly enter when the premises are actually being possessed and peaceably occupied by another. The re-entry should take place outside business hours when the premises are empty and ideally within daylight hours. Notifying the local police of your intended re-entry is also a good idea. When you re-enter the premises we suggest that you do so with a locksmith to change the locks and alarm codes. If there is any sign of aggression or refusal by the tenant to allow access then you should retreat and apply to the Court for an order for removal.

Once inside the premises it is advisable to take a note of all the goods and then arrange for the tenant to come and remove the goods in a prompt manner. After doing so secure the premises.

You should always check before removing goods if there are any registered security interests on the goods and advise the security holders of your intentions.

Recovering the outstanding arrears

There is a variety of methods to enforce the outstanding arrears and collect some if not all of your costs including but not limited to getting judgement, insolvency proceedings and charging orders against personal property. Speak to us and we will guide you through the process.

Please contact us if you have any questions.