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Landlords use a lease agreement to underpin their tenancies. The agreement will set out the rights and duties of each party so that each party is clear as to what their responsibilities are. Having a contract allows you to seek remedies if a tenant were to breach a provision in the lease agreement. You can apply to the court to get your tenant to either do or stop doing whatever action the provision provides for. You can also get compensation in the form of monetary damages from going to court. In addition, lease agreements also contain covenants. This article will outline what a covenant is and what you can do if your tenant is breaching it.

What is a Covenant?

Covenants are used in contracts to enforce promises. They require a party to either engage or not engage in a particular action. A covenant is considered a type of contractual condition that one party imposes on the other. Commonly, a lease agreement will have certain covenants embedded in it. Further, under New Zealand law, all lease agreements have implied covenants that are enforceable unless contracted out by the lease agreement.

What Are Some Implied Lease Covenants?

In New Zealand, some lease covenants are implied through legislation. This means they apply unless the contract explicitly states that they do not. Some implied covenants from the lessor involve:

  • the alteration of buildings;
  • offensive acts;
  • the commission of waste;
  • departing from a lease;
  • the entitlement to quiet enjoyment;
  • the usage of the premises;
  • inspections; and
  • the power to cancel the lease in certain circumstances.

If either party breaks these covenants, then the other party can seek a remedy in court. 

What Happens if My Tenant is Breaching a Covenant?

If you have a tenant breaching either an implied covenant or a covenant in your lease agreement, you should first discuss your issue with the tenant. It may be the case that they are unaware that they are breaching the covenant or did not know what the covenant is. Your tenant may then change their behaviour. However, if you find that your tenant is refusing to change their actions, there are steps that you can follow, and you may want to eventually cancel the lease. 

Issue a Notice of Intention 

The first step to do this is to issue your tenant with a notice of intention. This document should contain how long the tenant has to follow the covenant or be at risk of you cancelling the lease. The notice of intention must contain certain things for it to be valid. These include: 

  • specific wording as to what the breach is; and 
  • what the tenant must do to stop the breach.

For example, if the breach had to do with not paying rent, the notice of intention must contain how much rent they owe and when it is due.

Cancel the Lease

If the time on the notice of intention lapses, then you can then cancel the lease. Once this has happened, the lease is no longer active. A notice of intention must be issued before you cancel the lease, as you could be in breach of contract if you cancel the lease too early. 

At times you may have a tenant who is refusing to leave the premises. In this case, you are entitled to enter the premises and change the locks. However, this must be done without breaching the peace and can only be done during the daytime.

If you cancel a lease, it does not mean that you cannot get back any rent. You can still apply to the court to get back any loss you incurred. However, the tenant may not have any money to give as they may be bankrupt in the process of being liquidated. In this case, you may not receive any rent that your tenant owed to you. 

Key Takeaways

You should make sure that you are using foolproof commercial lease agreements in your dealings with tenants. This is so that you can get compensation in court if your tenant were to break this agreement. However, there is a specific process you must follow if your tenant breaks a covenant. A covenant is a legal promise to either do or not do something. Covenants can either be explicitly in the contract or implied through law. 

If your tenant breaks a covenant, you should write a notice of intention with all the relevant content. After the appropriate time has elapsed, you can then terminate the lease and apply to a court to receive any owing rental payments. If you need legal assistance with commercial lease agreements, contact LegalVision’s contract lawyers on 0800 005 570 or fill out the form on this page.

Frequently Asked Questions

Can any covenant be implied?

The Property Law Act 2007 lists a certain amount of covenants that are implied when a landlord enters into a lease agreement with a tenant.

What happens if I cancel my lease too early?

You may be found to have repudiated the contract, which means your tenant may be able to claim damages against you.

Can I re-lease the property once the lease has been cancelled?

Yes, once the lease is cancelled, you can do what you like with the property. This includes re-leasing or selling it.

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