Mackenzie Elvin

What Makes a Property Untenantable?

As the aftershocks continue to rumble through Canterbury, so too do the legal issues being unearthed, an article in the NZ Lawyer Magazine reports.

In the landlord, tenant relationship, commercial leases do vary, but lease provisions dealing with damage to premises are often substantially similar. As a rule, the issue is total destruction versus partial destruction. The key question here is what makes a property untenantable? In commercial situations, this depends on whether there has been a substantial interference to the tenant’s ability to enjoy, use, and operate the premises. If the premises or any portion of the building is destroyed or damaged so that it is untenantable, then total destruction will have occurred and the lease will immediately end. In addition, if demolition or reconstruction is required there may be a right for the landlord to terminate.

If the damage or destruction falls short of rendering the premises untenantable, then the landlord must use the insurance monies it receives to reinstate the premises as quickly as possible (provided that the tenant has not invalidated the landlord’s insurance policy and the necessary permits and consents are obtainable). If a property is being reinstated, a tenant will be entitled to a rent abatement during the reinstatement period, but leases tend to be silent on how to calculate this abatement.

As well as rent abatement, one issue that has arisen from the Christchurch earthquake is that some commercial premises are virtually undamaged but cannot be accessed due to their proximity to damaged buildings. In this case, the tenant has no right to rent abatement or to terminate the lease under the standard ADLS lease as the property is neither partially nor totally destroyed even though the tenant cannot use the property.

The matter is not really one of quiet enjoyment either, as the landlord is not preventing the tenant from accessing or using the building. Tenants in this situation would need to fall back on their own business insurance.

The standard ADLS lease (or any other standard form lease) does not deal comprehensively with these kinds of issues.

As a result, we may start seeing more tenants and landlords wanting their lawyers to draft clauses in leases that can more robustly cope with the impact on the landlord tenant relationship due to damage to commercial property caused by earthquakes and other natural disasters.

Please contact This e-mail address is being protected from spambots. You need JavaScript enabled to view it   if you require further information on these issues.

For the full article in the NZ Lawyer Magazine, refer to the NZ Lawyer, Issue 148

November 2010