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Fixed Term Tenancies - is a fixed term really a fixed term?

By Sam Pinson

Fixed Term Tenancies - is a fixed term really a fixed term?

The rights of tenants are now stronger than ever. Regulations around Fixed term tenancies have changed in light of the Residential Tenancies Amendment Act 2020 which took effect in February.

The Residential Tenancies Act 1986 (the Act) outlines the rights of landlords and tenants in relation to ‘residential premises’. A residential premise is defined as being any premises used (or intended) for occupation as a place of residence, whether or not such occupation is lawful.

The scope of the Act is wide. It provides rights to those in standard residential property arrangements, and to tenants who may find themselves in ‘unlawful’ premises, like a converted garage, or even an industrial warehouse.

Now, with the new Residential Tenancies Amendment Act 2020 (the Amendment Act), the rights of tenants have been strengthened even further.

 

BEFORE  11 February 2021 AFTER  11 February 2021  
  Existing Tenancies New (or renewed) Tenancies

Under section 60A the Act a fixed-term tenancy becomes periodic* when it expires unless either the tenant or the landlord gives notice to the contrary.

No reason or cause for ending the tenancy is required.

* A periodic tenancy has no fixed end date in the agreement.

Section 60A applies to existing tenancies entered into prior to 11 February 2021.

If a tenancy is renewed after 11 February 2021 it may be considered at new tenancy in which case the Amendment Act would apply.

Under the Amendment Act a landlord cannot stop a fixed term tenancy from becoming periodic on expiry of the term by providing notice without cause.

Under the new section 60A(2), fixed-term tenancies will automatically become periodic tenancies when they expire, unless:

Before expiry

  1. the existing tenancy agreement is renewed or extended
  2. the parties agree not to continue with the tenancy
  3. the tenant gives the landlord written notice that they will not continue with the tenancy (notice must be given at least 28 days before expiry)
  4. either the tenant or the landlord gives notice terminating the tenancy on or before the expiry, or that would terminate the tenancy if it were already periodic.
    This means that if a landlord doesn't want a tenancy to become a periodic tenancy, they need to give a reason for ending the tenancy and provide the correct notice period based on that reason.

The reasons for ending a fixed term tenancy are the same as for ending a periodic tenancy.

Reasons for terminating periodic tenancies are outlined in section 51 of the Act.

 

‘Contracting Out’ and Section 60A(2)(b) of the Act

Parties cannot include clauses in a tenancy agreement that conflict with the provisions of the Act. If challenged, the Tenancy Tribunal would likely hold that such clauses were unenforceable, even amounting to an “unlawful act” which would be subject to the fines outlined in the Act.

In our view, a clause in the tenancy agreement establishing that the tenancy will not extend beyond the expiry of the fixed term would likely be sufficient to constitute a valid agreement under section 60A(2)(b). The section itself does not specify whether such agreement must take place after the commencement of the tenancy, in order to be deemed effective.

Conclusion

As the amendments to section 60 of the Act have only been in force for a short period of time, the full implication for landlords remains to be seen.

While (as previously suggested) the inclusion of a clause establishing that neither party intends for the fixed-term tenancy to continue past its expiry may be adequate under the Act. We will likely only have certainty after this issue has been confirmed by the Tenancy Tribunal in the future.


If this article has raised any questions for you, we'd love to hear from you. Please contact Sam Pinson, Solicitor on sam.pinson@gibsonsheat.com.




Disclaimer: The information contained here is of a general nature and should be used as a guide only. Any reference to law is to New Zealand law and legislation. We recommend before acting on it, you consult your accountant or tax adviser