QUESTION
I was of the understanding that under Section 269 of the Property Law Act 2007 that tenants could NOT be held liable for the Landlord's commercial insurance policy excess. I have recently seen lease clauses that seem to attempt to circumvent that by stating 'The Tenant acknowledges that the Landlord has not fully insured the Property as there will be an excess...and for the purposes of section 271 (2) of the Property Law Act 2007 the Tenant acknowledges and accepts liability for payment of the Tenants share of such excess.'
The Contract seems to state that the application of an excess amounts to 'not fully insuring' thereby exposing the Tenant to that cost. Thoughts? Does this effectively override Section 269 of the legislation?
EXPERT ANSWER: Crossley Gates, Glaistor Keegan
The issue continues to arise because the Law Company (formerly the Auckland District Law Society) responsible for the standard lease document in use, seems to hold a different view. It keeps stating in that document that the lessee is responsible for the lessor's excess regardless. I explain why this is incorrect below.
1. The Company appears to have overlooked the High Court decision of Linklater v Dickison [2017] NZHC 2813. The High Court held that a lessor cannot recover an insurance excess (regardless of the amount) relating to damage to a leased building from a lessee because of the compulsory exoneration provisions in section 269 of the PLA. The key paragraph is quoted below:
[39] Section 269(1) plainly means that s 269 will apply once and if it is clear the lessor is insured for the damage that occurred or has covenanted with the tenant to be insured for that damage. The protection for the tenant is not limited to the extent of the indemnity or cover which the lessor is entitled to under her insurance policy. It is the fact that there is such insurance, not the extent of it, which protects the tenant. The excess payable by a lessor goes to the extent of the cover or indemnity which is available, not to whether the property is insured for the damage that occurred.
2. I don’t believe that, properly interpreted, section 271 of the PLA is addressing insurance excesses at all. I say that for two reasons:
1. The section is addressing no insurance or less than full insurance. Another way of saying that is it is addressing whether the sum insured is zero or it is insufficient for the building (underinsured).
2. The previous section 270 expressly refers to an ‘insurance excess’ in subsection (1) (b). As those words are not used in the following section 271, it seems to be a reasonable indication that section 271 is not addressing an insurance excess when it is referring to ‘not fully insured’.
