By Andrea White - 16 Oct 2023
In the current climate we are seeing more of our landlord
clients seeking advice on their options for dealing with defaulting
tenants. In the article below, Andrea White (a Senior
Associate in our Property Team) and Parsha Grant (Senior Solicitor
in our Litigation Team) discuss your best course of action when
your usual reminder emails and phone calls have gone
unanswered.
My defaulting tenant is ignoring all contact, what
should I do?
As a first step, we usually suggest a letter of demand - which
just as it implies, is a letter to the tenant demanding performance
of their obligations within a specified timeframe. We often
find the issuing of a demand letter from a solicitor is enough to
prompt payment (or to cease other types of default), or at the very
least will open the lines of communication where a payment plan, or
other alternatives may be agreed.
If personal guarantees have been provided under your lease,
demand should also be made on the individuals at this time.
Is your Tenant a Company?
If your tenant is a Company and has failed to pay rent or other
monies due following a letter of demand (or if you simply wish to
take a stern approach from the outset) a statutory demand can be
served on the tenant (provided the debt is undisputed and the debt
due is not less than $1,000.00). Once issued, the Company
will have 10 working days from the date of service of the demand to
dispute the demand, or 15 working days to pay the debt or enter
into compromise under Part 14 of the Companies Act 1993 (or
otherwise compound with the creditor), or give a charge over its
property to secure payment of the debt, to the reasonable
satisfaction of the creditor.
If the debt remains unpaid after 15 working days and if no
application to set aside is made, you will have 30 working days
from the expiry of the 15 working day period to apply to the High
Court to wind up the company. Again, we often find that a
threat to put a company into liquidation is enough to prompt
payment from tenants, but where it isn't our litigation team can
assist with issuing liquidation proceedings and/or issuing
proceedings against any personal guarantors depending on the
likelihood of recovery from each entity.
Just want your tenant gone?
All leases in New Zealand are governed by the Property Law Act
2007 which requires landlords to provide a tenant with notice of a
breach and, in the case of overdue rent/monies provide them with 10
working days to pay the arrears, or in the event of some other type
of breach provide a reasonable time to remedy it or pay a
reasonable compensation instead.
In short, once a lease has been granted, the law does not allow
you to cancel it for a tenant default without first providing the
tenant with adequate time to remedy the breach. If the breach
is remedied in time, the landlord can no longer cancel under that
notice and for any subsequent breach the process must be started
again.
If your tenant does not remedy a breach as properly required
under the notice, you will be able to take back possession at the
end of the period specified in the notice (provided you can do so
peaceably). If the tenant does not vacate at that time, we would
then apply to the court for a possession order.
Summary judgment proceedings would be issued to obtain judgment
and an order of possession. If you are successful and we receive a
summary judgment decision in your favour, then we can make an
application for a writ of possession. Once a writ of possession is
obtained, then a bailiff/sheriff may enter the land and hand back
possession to the owner.
Other options
If you have a bank guarantee in place, you can easily draw down
on this to remedy a monetary default. Once the drawdown has
been completed you can require the tenant to provide a "top up" of
the guarantee so that it complies with the amount required to be
provided under the Lease.
If your current tenant has taken an assignment of the Lease, you
may also (or alternatively) be able to pursue the previous tenant
(whether this is possible will depend on the terms of the
lease/assignment).
Summary
As you will see from the above there are several options you can
consider when dealing with defaulting tenants. Your best
course of action and recovery will vary from tenant to tenant and
will be dependent on the terms of your lease. The Property
Team at Martelli McKegg has significant leasing experience which is
backed by our experienced Litigation Team when the need
arises. If you need assistance or advice regarding tenant
default under your commercial lease (whether you are a landlord or
tenant), contact our team today:
Andrea White
Parsha Grant
Vanessa
Dew
Tony Johnson