Lease Agreement versus Tenancy Agreement - What is the difference?
Lease Agreement versus Tenancy Agreement
- What is the difference?
We regularly see clients interpreting lease agreements and tenancy agreements
as being the same document. However, while both agreements are similar, it is
important to understand the differences.
Lease Agreements ("Lease")
A Lease is a contract between a landlord and a tenant for a commercial
building. Leases are typically very detailed in regards to the conditions of
the tenancy so that there are no discrepancies or issues during the term.
Leases cover the responsibilities ("warranties") of both the tenant and
landlord in detail. Some warranties given by the landlord are in compliance
with the Health and Safety at Work Act 2015 and to act reasonably when
considering an assignment of the lease to a third party during the term.
Leases will typically include details such as the term of the Lease, its
expiry date, the monthly rent payments, rent reviews and rights of renewal.
There is an inherent benefit of including rent review dates and rights of
renewal because this ensures that the landlord cannot arbitrarily raise the
rent or cancel the Lease. However, it also ensures that the tenant cannot
leave the property before the end of the term without repercussions.
If the existing lease reaches its expiry date, the lease is at an end. If the
tenant does not leave the premise, under the Property Law Act 2007 they will
be considered to be on a month to month tenancy. Therefore, if the tenant(s)
wish to remain in the property, both parties must enter into a new Lease. The
landlord has the option to renew the terms of the old lease or is free to
change the terms and rental amounts as they see fit.
If you are in a commercial setting, in order to ensure the long-term letting
of your premises, we recommend that you enter into a Deed of Lease.
A tenancy agreement is used for tenants of residential properties and is
subject to the Residential Tenancies Act 1986 ("Act"). Where tenancy
agreements include the obligations of either party, they are generally not as
detailed or stringent as the warranties included in Leases. Some key
responsibilities of landlords are maintaining the property in reasonable
condition and allowing the tenant quiet enjoyment of the property.
Inside this edition
Agreement versus Tenancy Agreement - What is the difference?
Cross-leases - What are they and what implications do they have?
Disputes Resolution Series: Negotiation - How can it help you?
Subdividing Land - What to Expect
A Review of Labour's 100 Day Plan
Residential Land Withholding Tax - What is it and does it apply to you?
Proposed Bright-line Amendments
There are two types of tenancy: periodic tenancy (lasting longer than 90 days)
and fixed term tenancy. This article will focus on periodic tenancies.
Like a Lease, at the end of the periodic tenancy agreement term, the landlord
can alter the terms of the tenancy agreement. However, if a tenant does not
intend on renewing the tenancy agreement they have to give the landlord 21
days' notice prior to the expiration of the tenancy agreement in accordance
with the Act.
We note that a periodic tenancy typically requires that the landlord give 90
days' notice for the tenant to vacate premises in accordance with the Act.
Tenancy agreements are suited to short term tenants such as people who are
transitioning and are often used in residential rental properties.
Pros and Cons
Both lease and tenancy agreements have their advantages and disadvantages.
Rental agreements allow landlords to rent properties that might not be
desirable to long-term renters. It is advantageous when rental amounts can
rise quickly, allowing the landlord to renegotiate the terms of the agreement
more regularly than a lease.
A Lease, on the other hand, is advantageous to a landlord by providing the
stability of guaranteed, long-term income. It is advantageous to a tenant
because it locks in the rental amount and length of lease and cannot be
changed even if property or rent values rise.
When drafting a Lease or tenancy agreement, we recommend you seek the services
cross-leases were a popular form of dividing land for land owners. This is
because owners could avoid certain subdivision restrictions and would gain
similar results to a formal subdivision under the existing Act, but at a
fraction of the price.
However, when the Resource Management Act 1991 was introduced, it made
significant changes to the existing subdivision laws and practices, which
meant that cross-leased properties were deemed to be a subdivision and were no
longer a way to avoid subdivision requirements and costs for landowners. As
such, we are seeing the slow sifting out of cross-lease properties across New
Zealand, as they are gradually being replaced with fee-simple titles where
What is a Cross-Lease?
A cross-lease is where multiple individuals own an undivided share of land and
a lease for part of the land/building. For example, if the property is divided
into three separate segments, the owners will usually own an undivided 1/3
share in the land. Each owner of the land may then erect a building on their
allocated segment of the land. This building will then be leased back to them
(often for a term of 999 years) and recorded on the certificate of title
The leases that are created for the owners will record a "right of exclusive
use and enjoyment" for each building and often the associated yard. This
affords the owners of the relevant building under the lease the right of
exclusive use of that segment of land and the building without interference
from the other owners.
Along with these rights of exclusive use, the lease specifies rights and
responsibilities in respect of 'common areas' (i.e. driveways, shared lawns or
parking spaces) which apply to all owners, and often include the shared repair
and maintenance obligations of these areas.
Unlike a fee-simple property, how you maintain and develop a cross-lease
property is restricted and connected to the rights of the other owners, and
vice-versa. The level of restrictions can vary depending on the lease and/or
any variations made to this lease.
Common examples of the restrictions other
leasehold owners can impose are:
* limitations on alterations to the external dimensions of the dwellings or
structures on the property;
* restrictions on household pets;
* a responsibility to maintain common areas; and
* limitations on the scope of the colours and materials you may apply to the
external features of your house.
Therefore, if for example you would like to renovate and change the external
dimensions of your house, you must seek out written agreement from all other
leasehold owners. If you do not, the other owners may be able to seek remedies
such as reversing the renovations.
Buying and selling a cross-lease
If you own a cross-lease property, it is beneficial to maintain a good
relationship with the other cross-lease owners, as there is no guarantee their
permission will be given freely to any proposed work.
When buying a cross-lease property, you need to weigh up the limitations of
the lease against your intended use and/or development of the property and
buildings to ensure you can fulfil these obligations.
With a cross-lease property, it is also important to clarify the boundaries
for the exclusive use and common areas on the property. While most exclusive
use and common areas are well marked on the flat plan and by fences or
grass/concrete, some properties are not so clear or all grounds/yards are
shared, which can cause disputes between owners.
If you are selling your cross-lease property, you should be aware that if the
dimensions of the dwellings on the property do not accurately reflect the
dimensions of the property recorded on the flat plan attached to the title, a
purchaser can raise an objection; this is called "requisitioning the title".
If you do not agree to amend the title (which can cost significant amounts of
money), the purchaser has the right to cancel the sale and purchase agreement.
You should not be scared-off by cross-lease properties. However, understanding
some of the finer points of cross-leases will be extremely beneficial for you
whether you are buying, developing or selling. If you are buying, renovating,
selling or converting (into a fee simple title) a cross-lease property, we
recommend that you seek legal advice as to the requirements of the
Alternative Dispute Resolution ("ADR")
methods are an alternative option to going directly to court. Using ADR
methods instead of pursuing the matter in court is commonly more cost
effective for the parties involved, ADR may also take less time to resolve the
dispute. ADR relieves the court of cases which they believe can be resolved
without court assistance. This article is the third and final article in our
ADR article series and will focus on negotiation.
Negotiation is usually the first method of dispute resolution used when a
dispute occurs. This is because negotiation has the ability to be quick,
inexpensive and provide a binding resolution.
There are two types of negotiating methods commonly used, unassisted
negotiation and formal negotiation. The difference between formal and
unassisted negotiation is the involvement of lawyers. Unassisted negotiation
is when the parties involved in the dispute negotiate directly with one
another. In formal negotiations all correspondence will go through the
parties' respective lawyers.
Unassisted Negotiation is an inexpensive option in comparison to formal
negotiation as all it costs the parties is their time. Occasionally, lawyers
have the ability to polarise the matter and cause the other party to be
defensive. Therefore, depending on the nature of the dispute, attempting
unassisted negotiation has the potential to be more beneficial than
immediately sending the correspondence through a lawyer. However, we do
recommend seeking the advice of a lawyer to find out your entitlements in any
In most cases, we find that parties can resolve the issues themselves via
unassisted negotiation. However, if the parties are entrenched in their views
or have a sense of grievance, this type of dispute resolution can become
ineffective. At this point, it becomes necessary to turn to other types of ADR
options, one being formal negotiation.
Pros and Cons of Negotiation as a
dispute resolution method
Negotiation in general gives the parties a higher degree of control to create
their own process and craft their own agreement that is not required to be
dependent on each parties' entitlement under the law. It can be more time
effective than any of the other dispute resolution methods, is generally more
informal, and typically less stressful.
A benefit of involving a lawyer and engaging in formal negotiation is the
introduction of an objective third party which may improve communication
between parties and preserve or enhance the relationship.
One issue is that negotiation, formal and unassisted, is far from guaranteed
to succeed before it is necessary to resort to some other more formal and
structured method of dispute resolution. This may take the form of mediation
or arbitration which are discussed in our previous two articles.
Any type of negotiation regularly requires the parties to compromise. This can
cause issues if both parties are uncompromising in their approach. If this is
the case, usually another method of ADR is required.
Formal negotiation incurs legal costs. Furthermore, if the formal negotiation
does not work, the parties may see it as a wasted cost and time.
We recommend that, if possible, the parties attempt unassisted negotiation
first as this will save the parties legal costs. If unassisted negotiation
does not resolve the issue(s), we recommend seeking legal advice as to which
ADR method would be best suited to your dispute.
A If you are considering purchasing land
with the intention of subdividing or if you are simply looking to increase the
value of your existing property by adding an additional house, there are a
couple of things that you will need to understand before taking the leap, so
A subdivision involves the conversion of one large property, whether it be a
parcel of land or a building, into two or more parts, to enable those parts to
be sold or split into separate ownership.
To do this, a specific kind of resource consent, called a "subdivision
consent", is required from the relevant local Council.
The statutory requirements governing subdivision are contained in the Resource
Management Act 1991 (the Act). This Act enables the district and city councils
to oversee and manage all subdivisions through district plans and resource
consents, thereby controlling any adverse effects on the community and
environment that the subdivision may have.
A range of different subdivisions are possible: fee simple, unit title or
cross lease. A fee simple subdivision creates a new allotment from an existing
allotment. A new certificate of title is created for this new parcel of land
and this is independent of the original parent title. This is the most common
form of subdivision and will be the focus of this article.
Anyone that is thinking about subdividing should be aware of the length of
time involved in the subdivision process, whether it be in a rural or urban
area. The length of time depends on the size and complexity of the subdivision
project. The council, surveyors, Land Information New Zealand, and lawyers are
each required to provide their input and sometimes this means that the length
of time required is longer than anticipated.
Below is a summary of the stages involved in a subdivision process. The times
indicated will vary depending on the complexity and size of the subdivision
but as general rule of thumb, the process could involve around one month per
party. In other words, a typical subdivision process can take some 5-6 months
in total: sometimes, more. It is essential that whoever is undertaking a
subdivision project plans well in advance for matters such as interest rate
changes, holding costs, and the need for certificates of title to be issued
before mortgages and sales of the new titles can be secured.
The subdivision process can be
summarised into five stages.
1. Subdivision consent
2. Survey plan approval
3. Section 224c certification
4. Lodgement with Land Information New Zealand
5. Certificate of title
Stage 1: Obtain Council Approval
Almost always, anyone wishing to subdivide will need to obtain a resource
consent. Even in situations where the proposed subdivision is a permitted
activity, a certificate of compliance will be required.
Stage 2 - Approval of Survey Plan
The subdivision consent obtained under Stage 1 above must be 'given effect to'
within five years of the grant of the consent. This is done by obtaining
approval of a survey plan from the relevant city or district council.
The council will assess whether the survey plan conforms with the subdivision
consent or certificate of compliance, including determining whether the
conditions of consent have been or will be satisfied. If the survey plan is
compliant, the council must approve the survey plan. If the survey plan is not
compliant, the council must decline to approve the survey plan.
Stage 3 - Section 224(C) Certification
Before a survey plan can be deposited, a certificate must be lodged with the
Registrar-General of Land confirming that the relevant council has approved
the survey plan and that all of the conditions of the subdivision consent have
been complied with to the satisfaction of the council.
Stage 4 - Land Information New Zealand
The penultimate stage of the subdivision process requires the lodgement of the
legal title documents and the survey plan with Land Information New Zealand
Stage 5 - Certificate of Title
Once Land Information New Zealand's approval under Stage 4 above is received,
the subdivision process concludes with the cancellation of the existing title
and the issue of new certificates of title for each new parcel of land shown
on the survey plan.
Before the election, the Labour Party
laid out a plan with 18 key goals to achieve within their first 100 days in
office ("100-day Plan"). This 100-day Plan was adopted and implemented by the
Labour-led coalition Government ("Labour"). This article aims to provide an
analysis of the progress of some of the key goals as well as touching on some
future policies that Labour intends to implement that may affect you.
Goal number three: Pass Healthy Homes Guarantee Bill ("HHGB")
The HHGB was passed in December 2017 and requires that any new tenancy from 1
July 2019 must be either properly insulated or contain a heating source able
to make the home warm and dry. All tenancies must meet the new standards by 1
While the exact requirements are not in the HHGB, they will be set by Labour
before the start of 2019. Grants of $2,000.00 will be available for eligible
landlords to upgrade.
If you are a landlord who will be affected by this change, you will need to
inquire as to whether you are eligible for a grant. If you are not, you will
need to personally fund the upgrade.
We note that all foil insulation is now illegal and will need to be replaced.
Goal number four: Ban overseas speculators from buying existing houses
New Zealand's residential property will no longer be for sale to buyers who
are considered an "overseas person".
Under the bill, an "overseas person" would be someone who is not a New Zealand
citizen, or is not "ordinarily resident" in New Zealand. A person would be
classified as "ordinarily resident" if they hold a permanent resident visa and
have been in New Zealand for 183 days in the past year. The New Zealand Law
Society have expressed concerns that people may innocently enter into sale and
purchase contracts not realising that they are classified as an overseas
person. Under the current Sale and Purchase template this would present
If you have any doubt as to whether you would be classified as an overseas
person and you are planning to buy a residential property, please seek legal
Goal 17: Set the zero carbon emissions goal and begin
setting up the independent Climate Commission
This goal has been partially executed. James Shaw, Minister for Climate
Change, has announced a goal of net-zero emissions by 2050; however has not
set up an independent Climate Commission. The Government has already made
progress on the 2050 goal as they have stopped issuing new permits for
offshore drilling. Prime Minister Jacinda Ardern, has stated that "it is
important to get ahead of a change that would inevitably happen as the world
moves to combat climate change."
Labour has compromised by stating that the existing off-shore mining permits
which cover an area the size of the North Island will continue to permit
further exploration. Additionally, Labour has opened a new round of
applications for onshore exploration.
Labour has reported that the industry is not at immediate risk but that New
Zealand has signed up to international obligations under the National
Government that it needs to meet.
Future policies that may affect you
Regional fuel tax: Aucklanders will pay a nine to twelve cent fuel tax.
However, the fuel tax combined with Auckland Council's regional fuel tax could
see Aucklander's paying upwards of 20 cents more per litre for fuel compared
to the rest of New Zealand.
Secondary Tax: Although Labour does not plan to implement its tax plan until
2020, meaning that it will have to win a second term, as part of the tax plan
they state that they will remove secondary tax which will mean significant
savings for people who have two or more incomes.
Tourism and Infrastructure Fund: This won't affect citizens or New Zealand
residents; however, it will affect foreigner visitors. The Labour government
will charge a $25.00 levy on international visitors which is expected to
equate to an extra $75 million each year. The Mayor of Rotorua, Steve Chadwick
Faafoi, said there was no evidence that the levy would hurt tourism. However,
National Campaign Manager had some reservations. We note that visitor taxes
are a growing trend globally. Countries such as Australia, United States,
Italy and Bhutan already impose such taxes to help grow the infrastructure
that tourists use.
Economists have stated that because it is early in Labour's term, it is
difficult to predict any kind of result. Therefore, it seems that New
Zealanders are just going to have to wait to see how Labour performs in the
Residential Land Withholding Tax
- What is it and does it apply to you?
Residential Land Withholding Tax ("RLWT")
is a tax deducted from residential property sales if the following applies:
1. The property being sold is residential land in NZ.
2. The sale amount is payable or paid after 1 July 2016.
3. The seller:
a. Bought the property on or after 1 October 2015 through to 28 March 2018
inclusive and owned it for less than two years before selling; or
b. Bought the property on or after 29 March 2018 inclusive and owned it for
less than five years before selling; and
c. Is an offshore RLWT person.
Any person or entity who falls within either 3(a) or (b) above will need to
complete a RLWT declaration to identify whether 3(c) applies and RLWT needs to
RLWT does not apply to inherited properties, relationship property settlements
or those who hold a certificate of exemption.
Proposed Bright-line Amendments
Historically, the "Bright-line Test" required gains on the sale of
residential property (excluding main homes) within two years of purchase to be
treated as income and accordingly created an income tax liability on the gain.
However, the Bright-line Test was amended under the Taxation (Annual Rates for
2017-18, Employment and Investment Income, and Remedial Matters) Act 2018
("Act") on 29 March 2018. The Act states that the Bright-line period is
extended from two to five years and any profits will be taxed regardless of
intention when the property was acquired. Residential properties acquired
before 29 March 2018 will remain subject to the two-year Bright-line Test.
This amendment was expected given Labour's pre-election campaign on reducing
property speculation. Revenue Minister, Stuart Nash, is of the view that this
extension will make homes more affordable for owner-occupiers and deter
property speculators and hopefully result in a fairer tax system.
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Scannell & Co - 122
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