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PROPERTY
JULY 2012
Legal Landscape
FRUSTRATED LEASES -
"IF I CAN'T GET IN WHY CAN'T I GET OUT?"
The Canterbury earthquakes highlighted the exposure of tenants when their leased premises were
tenantable but access to the premises was interrupted because of damage to nearby buildings and/or
civil defence cordons. We continue to receive enquiries about whether tenants can bring a lease to an
end when there are issues with access to their premises.
As we have addressed in prior articles [http://www.brookfields.co.nz/newsroom/property/uncertainty_to_terminate_
untenantable.asp], the commonly used ADLS lease form provides for a lease to terminate if the premises
become untenantable, but unlike the old "BOMA" lease, it does not address the situation where the
premises are tenantable but access is prevented or restricted (and nor does the new PCNZ lease). In
such circumstances tenants ask if they are able to bring the lease to an end through the doctrine of
frustration.
A contract is frustrated if an unforseen event makes performance of the contract either impossible or
performance is possible only in a radically different way.
It should be stated at the outset that while, in principle, the doctrine of frustration applies to leases, the
cases in which it is likely to succeed are expected to be extremely rare. We are not aware of any reported
case of a lease being held to be frustrated in New Zealand although in an oral judgement in Stack Shelf
Company Number 16 Ltd v Mathers, Fisher J said "In this case there is a respectable argument that
inherent design and construction defects unforeseen by the parties meant that the building had been
rendered unsafe, demolition was required … [and] removed the very subject-matter of the lease… the
lease is therefore discharged by frustration." The Judge went on to say that because of a clause in the
lease and the way the issues came before the Court… "I think it unnecessary to ventilate that further".
So, while an interesting observation, the case was not decided on the issue of frustration.
The leading UK House of Lords case on frustration of leases is National Carriers Ltd v Panalpina
(Northern) Ltd (1980). In that case, the tenant could not access the warehouse premises for an
anticipated period of 12 to 20 months because the only road access to the warehouse was closed by the
local authority due to demolition works required on a dangerous building opposite the leased premises.
The tenant, unable to access the warehouse, ceased paying rent. The landlord sought recovery of rent,
and the tenant claimed that the leased had been frustrated.
The House of Lords held (contrary to an earlier Court of Appeal case) that the doctrine of frustration was
applicable to leases. In National Carriers, one Law Lord, obviously a Gilbert and Sullivan fan, found the
doctrine akin to the admissions of the well bred captain of the H M S Pinafore in that if invoked, it could
Auckland
t: 09 379 9350
f: 09 379 3224
Manukau
t: 09 262 2145
f: 09 379 3224
www.brookfields.co.nz
Wellington
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f: 04 499 9822
not be said "never" to be applicable but it would "hardly ever" succeed. On the facts before them, having
regard to the likely length of the term of the lease after the interruption and in relation to the original term
and other factors, the Lords found the lease was not frustrated.
The lease was for a term of 10 years. There were four and a half years remaining. The anticipated
interruption of 12 to 20 months due to the road closure would mean there would be three years, or 2/3rds
of the remaining term, left after the interruption. The interruption would be only 1/6th of the total term. It
was not enough that the tenant was put to considerable expense and inconvenience.
His Lordship, having literary as well as musical interests, referred to the "Compleat Angler" on the
subject of strawberries: "Doubtless God could have made a better berry, but doubtless God never did",
and added "it does not follow… that He never will…" So while frustration as a remedy is available, no
tenant should be confident of succeeding in an application to terminate their lease in reliance on that
doctrine except in the most extreme circumstances, as described in the Stack Shelf Company case
perhaps.
Our Commercial Property partners are:
Howard Johnston
Deborah Miller
Brett Abraham
John Delugar
Partner
t: (09) 979 2161
e: johnston@brookfields.co.nz
Partner
t: (09) 985 6910
e: abraham@brookfields.co.nz
Partner
t: (09) 979 2134
e: miller@brookfields.co.nz
Ian McCombe
Partner
t: (09) 979 2159
e: mccombe@brookfields.co.nz
Chris Paterson
Partner
t: (09) 979 2173
e: paterson@brookfields.co.nz
Partner
t: (09) 985 6913
e: delugar@brookfields.co.nz
The contents of this publication are general in nature and are not intended to serve as a substitute for legal advice on a specific matter. In the absence of such advice
no responsibility is accepted by Brookfields for reliance on any of the information provided in this publication. © Brookfields
Auckland
t: 09 379 9350
f: 09 379 3224
Manukau
t: 09 262 2145
f: 09 379 3224
www.brookfields.co.nz
Wellington
t: 04 499 9824
f: 04 499 9822