What do you have to pay for as a tenant and what does the Landlord pay for? Read the fine print of your Commercial Lease carefully …

A tenant’s premises was robbed just days after its landlord had deactivated a security and monitoring service for the premises. The landlord had been paying for security services since the tenancy began one and a half years (1.5) earlier, but later decided to disable the services without consulting the tenant.

As the tenant was unaware, she had been unable to take steps to arrange her own security services. Consequently, her insurance provider refused to accept her claim following the robbery because an active security system was a requirement of the policy condition. As a result, the tenant’s business suffered significant loss.

Under their commercial lease agreement (“the Agreement”), the tenant was not obliged to pay for the costs of “security services”. However, the Agreement did not specifically provide that the landlord was responsible to pay for them. Therefore, under the Agreement there appeared to be no remedy for the tenant.

Commercial Lease Outgoings

When entering into a commercial lease, it is common to use the standard Auckland District Law Society Deed of Lease (“the Lease”).  Each Lease will vary, but it is common for the Lease to include a list of outgoings that the tenant is required to pay, which contributes to the running costs of the premises.  For example, the Lease usually requires the tenant to pay a proportion of the rates, building and security services, repairs on the building, car park maintenance, body corporate charges and so forth.

The Lease must specify which party is responsible for the payment of certain outgoings. Where outgoings have been excluded in the Lease, the tenant is usually not obligated to pay for those costs. However, if a tenant wants a particular service and the Lease does not require the landlord to cover it, then the tenant will need to make its own arrangements, as its own cost.

But in the situation above, after paying for the services for 1.5 years, had the landlord created a legitimate expectation that the tenant to rely on; that the landlord would provide an active security service for the premises during the term of the lease?

Legitimate Expectation

A landlord could be liable to pay for particular costs where it has created a “legitimate expectation” that it would do so.

Legitimate expectation extends the scope of enforceable promises from those that are express or implied (for example, in a Lease) to those that may arise out of one’s conduct who is a party to the contract. The other party must also place reasonable reliance on the expectation that was made.

Where one party to the contract has established a legitimate expectation, it is presumed that it would be unfair to deprive the other party of that expectation.

In the above situation, the landlord provided an active security service for 1.5 years and arguably had created a “legitimate expectation” to the tenant that he would provide those services on the premises for the duration of their Lease.  As the landlord deactivated the security services without consulting the tenant, he could be liable.

It is important to ensure you know what obligations both the landlord and tenant owe under your Lease. Before entering into a Commercial Lease, it is recommended to take a closer look at the list of outgoings to ensure you are aware of the costs that you will be responsible for. This provides you with an opportunity to include or exclude any outgoings under the Lease.

If you are unsure about any obligations under a Commercial Lease, we recommend obtaining legal advice before signing, so it can be thoroughly reviewed and your obligations can be explained to you.