Landlords of commercial properties must contend with a myriad of issues, from tenant retention in a competitive market to undertaking ongoing property maintenance. One issue easy to overlook, yet affects both, is seismic risk assessment.

The Risk

A commercial building’s ability to withstand an earthquake and protect against loss of life is measured using the New Building Standard (NBS). A building with a 100 per cent NBS rating is considered to meet the seismic performance objectives of the current Building Code. A rating of 34-67 per cent NBS means a building is considered an Earthquake Risk Building, and a rating below 34 per cent means an Earthquake-Prone Building. Seismic assessments can be done by a suitably qualified engineer. These ratings often affect leases of commercial properties.

Obligations

Landlords of commercial leases are generally responsible for maintaining the structural integrity of the premises, subject to the terms of the specific lease. For example, under the standard Law Association lease, a landlord has an obligation to keep and maintain the building in good order and repair.

A tenant and landlord might not agree on whether a building that is considered earthquake prone, but otherwise suitable to allow the tenant to operate their business in, is compliant with their landlord’s obligations under a particular lease.

To reduce the risk of a dispute with a tenant it’s prudent to insert an acknowledgement of the current seismic rating into the lease and clearly set out what obligations the landlord will have to maintain this standard.

Health And Safety

Tenants and landlords will have obligations pursuant to the Health and Safety at Work Act 2015 as a Person Conducting a Business or Undertaking (PCBU). Tenants who operate a business from the leased premises will have obligations to minimise health and safety risks for their employees.

Landlords should be conscious of the risk that a tenant, in discharging their legal obligations as a PCBU, may decide to cease operating from a premises if they become aware it is an Earthquake Risk Building or Earthquake-Prone Building. While a tenant who makes that decision might still have a legal obligation to pay rent, they might struggle to do so if they are no longer able to trade from the premises.

Interruptions

Leases will often provide a landlord with an express right to access the premises for the purpose of undertaking any works that might be required to ensure the premises comply with any statutes, regulations or requirements at law. Even if a lease lacks this right, a tenant might be agreeable to their landlord undertaking strengthening work on the premises to reduce the risk of damage or loss of life in the event of an earthquake.

Any strengthening work a landlord does undertake needs to be balanced against their legal obligation not to disturb the tenant’s use of the premises. If a landlord and tenant agree to certain strengthening works being done, it is prudent to record the extent of the works in writing. A landlord can also agree to a partial abatement of rent and outgoings in recognition of any disturbance the tenant might incur due to the works.

Practical Steps

It is very common for landlords and property managers to take a “one size fits all” approach to leasing, and to rely on the standard maintenance terms found in template documents.

However, a sensible landlord should work with their tenant from the outset to understand both parties’ legal obligations and the potential tension points that might arise during a long-term lease because of seismic issues.

A few bespoke clauses prepared at the outset that record an acknowledgement of the current condition of the building and how the parties will comply with their health and safety obligations can prevent a potential dispute during the lease term or when a tenant is later re-negotiating the basis on which they are prepared to renew an existing lease.

Disclaimer: The information provided in this article is for general informational purposes only and should not be relied on as legal advice. Always consult a qualified lawyer for advice specific to your situation.

Jenny Turner is a partner in Wynn Williams’ Property & Business Advisory Team, with specialist knowledge in property matters. Michael Brennan is an associate in Wynn Williams’ Commercial Property Team.