Commercial leases – what to look out for
A commercial lease can be a complicated agreement with binding implications for both the landlord and tenant. It is vital that both parties understand their rights and responsibilities. The following are some of the more notable points for consideration.
One of the most basic but important considerations is renewal dates. Common wording for a renewal clause is “3 rights of 5 years each”. This means that once the initial term of the lease comes to an end, the tenant has the right to renew the lease for a further five years, three times. After the third term of five years comes to an end, the lease term must be re-negotiated by the parties. You should know how to formally renew your lease and always do it in writing.
Whether you are a landlord or a tenant, it is important to note whether your lease has a ‘ratchet clause’. This clause states the rent will not fall below the rent paid in the previous year and may mean that despite a reduction in the property value, the rent will either remain at what was paid previously or potentially rise. A ratchet clause is for the sole benefit of the landlord.
Where you may be sharing a commercial space with other tenants, it is important to check there are no restrictions on the type of tenancy you intend to operate, and the portion of the outgoings to be paid by each tenant reflects their proportional use of the building and its services.
‘Fit-out’ clauses dictate the extent of alterations or works that can be carried out to the premises. Where you have to put up signs or fixtures during your tenancy that is not referred to in the fit-out clause, you may be required to return the premises to the original state at your cost when you leave.
Most leases specify what the tenant/landlord are responsible for around maintenance and repair if damage occurs. We advise you to take detailed notes of any items/areas that are damaged or look worn at the beginning of the tenancy.
Finally, whether you are a tenant or landlord, you may want to check whether your lease can be assigned to another party. Having the ability to assign a lease means that you can have another party take over your responsibilities and liabilities under the existing lease. This is beneficial if for any reason you decide you no longer want to continue with the lease. Tenants should check requirements for landlord approval regarding the potential assignment of the lease before signing the lease.
A personal grievance (PG) is a formal process in which an employee may raise a complaint against their employer if they have been dealt with unfairly or illegally. The grounds and process for raising a PG are outlined in the Employment Relations Act 2000 (ERA).
A PG is any grievance you have as an employee against your employer or former employer, including but not limited to the following:
- Unjustifiable dismissal
- Unjustifiable action which disadvantages you
- Sexual harassment
- Racial harassment
- Duress in relation to membership of a union or other employee organisation.
Whether a dismissal or action is justifiable depends on whether your employer acted in a way that a fair and reasonable employer would have done under the circumstances prevailing at the time the dismissal or action occurred. In an unjustified dismissal, this includes assessing whether your employer followed a fair process in dismissing you and whether your employer had good reason to dismiss you e.g. was there an action serious enough to warrant immediate dismissal under the employment agreement, and if not, did your employer provide you with warnings or conduct performance review meetings?
A PG must be raised with your employer within 90 days of the date that the conflict or issue occurred, i.e. if you are dismissed from your job, you have 90 days from that date to make a claim for unfair dismissal. Your employer can allow you to raise a claim if you exceed the 90 days, and if they do not consent, you can request the Employment Relations Authority (the Authority) or Employment Court to allow your claim, due to exceptional circumstances, such as:
- You were so traumatised by the conflict that you could not raise the claim within 90 days
- You made reasonable arrangements with an agent to raise the claim, but your agent failed to meet the deadline
- Your employment agreement did not stipulate the services available for resolving employment disputes including the 90-day time to raise a PG
- Your employer did not state reasons for dismissal when required.
You should write to your employer detailing the conflict or issue and the reasons why you are raising a PG. This keeps a record of your claim and is also beneficial if a dispute arises. As an employee, you then have three years to begin proceedings with the Authority after raising a PG. If you exceed this time, you can seek permission from the Authority to continue with your claim, but this is rarely granted.
In the event of a conflict in the workplace, informal discussions with your employer or mediation are the most pragmatic ways forward to find a solution and maintain a positive employee-employer relationship before instigating a PG, as raising a PG can be costly, time-consuming and stressful.
If the Court or the Authority settles a PG, it may provide any one or more of the following remedies to you as an employee, including but not limited to:
- Reinstatement to your job or a similar role
- Reimbursement of a sum equal to the whole or part of the wages or other money lost by you because of the PG
- Compensation paid to you for humiliation, loss of dignity, and injury to your feelings
- Recommendations to your employer on what to do if a colleague was harassing you e.g. transferring that colleague or taking disciplinary or rehabilitative action against that colleague.
It is important for employees and employers to deal with each other in good faith and have a clear understanding of their rights and obligations under an employment agreement to avoid any PG claims.
Terms of trade
We are often approached by disgruntled business owners or dissatisfied customers to help resolve disputes arising from deals based on informal arrangements. The law certainly assists in defining and clarifying certain aspects of a contractual relationship between parties. The starting point is usually a consideration of what the parties intended and agreed on at the time the goods and/or services were purchased.
One of the most useful tools for businesses is having effective processes and procedures for engaging a client or customer. This is achieved through terms of trade (also known as conditions of sale or terms and conditions), which create a relationship that is legally binding.
Effective terms of trade
Terms of Trade outline key rights, duties, obligations and available remedies
Businesses need to find a balance between risk protection and being user-friendly, so customers feel confident about engaging in a business relationship with them.
A dispute resolution clause is an important part of the terms of trade that should not be excluded. Having specified avenues or methods that determine how disputes will be dealt with avoids more costly and time-consuming resolution methods such as litigation.
Standard terms of trade can include (but are not limited to):
- Who the parties to the contract are
- Expectations regarding the nature of the goods or service
- The cost of the goods or service, including relevant factors such as fixed or varied payments, quotes or estimates and the inclusion of GST
- The payment method, whether guarantors are required, and whether interest rates will be imposed
- The recovery process when payments have not been made and debt has accumulated
- The procedure that will be followed if goods or services have not been adequately provided
- Limited liability
- Dispute resolution clauses
Terms of Trade can also include terms relating to termination, delivery, installation, transfer of ownership, requirements for insurance, copyright, intellectual property, returns and warranties.
It is essential that terms of trade are individually customised to fit a businesses’ needs, as when they are incomplete or do not have enough information, a business risks being unprotected in an unfavourable situation.
Terms of Trade should also be regularly updated to ensure they are up to date with the law and that consistent assessments of risk are being maintained.
Terms of Trade are, in the long run, cost-effective and simple risk management tools, which promote effective interactions and positive experiences between a business and its customers.
We recommend you undertake regular reviews. Sound terms of trade require a significant degree of legal expertise.
For further assistance, contact Paul Logan.
Major transactions – your rights & obligations as a director or shareholder
A general principle of the Companies Act 1993 is that the board of directors is appointed to manage and control the day-to-day operations of a company without having direct interference or oversight by shareholders. However, some decisions may substantially change the nature or direction of a company and the shareholders are required to approve these decisions. These substantial decisions are known as major transactions.
A major transaction is where a company purchases or sells assets or incurs an obligation that has a value of greater than half of the company’s existing assets e.g. if a company was created to own a dairy farm and it subsequently sells the farm, this would constitute a major transaction as the farm was a significant company asset.
A major transaction must be approved by special resolution, which requires a majority of 75% of the shareholders to approve the transaction. A company cannot avoid the major transaction provisions set out in the Act, but it can add requirements for passing a major transaction under its company constitution
Breach of major transaction provision
If the major transaction is entered into without a special resolution, this breach does not mean that the transaction is automatically invalid. It is possible for shareholders to later approve the major transaction if it was not entered into via a special resolution. This can be beneficial for the company and its directors as it would be more difficult for shareholders to later challenge the board of directors’ decisions.
Where a company has entered into a major transaction without passing a special resolution and the transaction is not yet complete, shareholders can apply for an injunction to stop the directors from completing the transaction. It may be difficult for shareholders to seek remedies if they cannot show they incurred a financial loss because of the major transaction.
Directors of a company may be personally liable if a major transaction is not approved by a shareholder special resolution. The shareholders may seek remedies, which include:
- Requiring the company to buy the shareholders’ shares
- Requiring the company or any other person to pay compensation
- Regulating the future conduct of the company’s affairs
- Altering or adding to the company’s constitution
- Appointing a receiver of the company
- Putting the company into liquidation
If you are a shareholder who voted against a major transaction, but the transaction was approved by the majority of shareholders, you have the right to exercise minority buy-out rights i.e. require the company to buy your shares at a fair and reasonable price. The minority buy-out rights provision provides an avenue for minority shareholders who do not agree with the majority shareholding and allow for the majority shareholding to validly make changes to the company.
Don’t take offence
Under the Fencing Act 1978, if a property owner chooses to build a new fence or refurbish an existing fence, the neighbouring property is expected to contribute 50% of the total price. The proposed fence must be “adequate” to reasonably satisfy its purpose. The neighbour is not expected to contribute 50% of the cost if the current or proposed fence is more than adequate to serve its purpose.
A fencing notice must be served on the neighbour 21 days before starting the build and must include specific information. Neighbours can object to the proposed fence altogether, or to the type of fence being built. If an objection is raised, the neighbour must serve a cross-notice on the owner building the fence within 21 days of receiving the fencing notice.
If an objection is raised and the parties cannot agree, options include mediation, arbitration, the Disputes Tribunal or the District Court.