Electricity charges in lease agreements: competing interpretations

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A recent judgment handed down by the High Court of New Zealand highlights the need for exercising extreme care when drafting and reviewing lease agreements. Volumex Nominees Limited V The Attorney-General [2018] NZHC 647 concerned an agreement between landlord and tenant in a seven-story building in New Plymouth. The dispute was about the amount of electricity charges to be paid by the tenant. We take a look at electricity charges in lease agreements.

Electricity charges lease agreements

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By Alex Silcock, Compliance Quarter

Electricity charges in lease agreements – Background:

The case was brought before the court in an application for summary dismissal. Associate Judge Johnston, at the beginning of his reasons, noted that ‘at the heart of this case is a humble comma’. The particular clause that provided for the payment of electricity charges was not in dispute. Rather, each party sought to rely on a competing interpretation of the relevant clause.

The landlord and the tenant agreed that the latter would pay “… all charges payable in respect of the Premises for telephone, gas, electricity, and any other Tenant consumables … supplied to and actually consumed on the Premises”.

The landlord submitted that this clause provided that the tenant was to pay for all electricity charges ‘in respect of the Premises’. While the tenant contended that payment was only required for charges that were both ‘in respect of the Premises’ and ‘supplied to and actually consumed on the Premises’.

This distinction was material, as the tenant’s bill included charges for consumption by the building’s heating, ventilation and air-conditioning plant (HVAC plant). The primary HVAC plant is on the roof of the building and therefore excluded from the ‘Premises’ as defined in the lease.

Electricity charges in lease agreements – Competing interpretations:

Landlord’s interpretation: There are two distinct parts to the above clause, separated by an Oxford comma. In the first part, the tenant is required to pay for telephone, gas and electricity in respect of the premises (including the costs of running the HVAC plant on the roof). The second part begins after the comma following ‘electricity’. This part relates only to ‘other Tenant consumables’, not telephone, gas and electricity. Therefore, the landlord contends that the tenant agreed to be charged for ‘other Tenant consumables … actually consumed on the Premises’, but for all electricity charges, in respect of the premises, whether consumed on the premises or not.

Tenant’s interpretation: The entirety of the clause must be read as a whole, and when read as a whole, there is a clear and unambiguous construction of the clause. There is no distinction made between electricity, telephone and gas on one hand, and ‘other Tenant consumables’ on the other. Therefore, for the tenant to be responsible for any of the above charges, they must be both ‘in respect of the Premises’ and ‘supplied to and actually consumed on the premises’.

Electricity charges in lease agreements – Conclusion:

The court preferred the construction as argued by the tenant and found that the plaintiff had not discharged the onus of establishing that the defendant had no defence. Therefore, the application for summary judgment was dismissed and it is likely that the matter will go to trial.

This matter should be a lesson to lawyers, landlords and tenants alike, to ensure that lease agreements are drafted clearly and accurately reflect the intention of the parties. If you are involved in an energy dispute or would like your contracts reviewed, please contact one of the experienced lawyers at Compliance Quarter or Law Quarter.

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