COMMERCIAL ESPEAKING - NORRIS WARD MCKINNON
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Commercial
eSpeaking Level 7, Norris Ward McKinnon House
711 Victoria Street, Hamilton, Private Bag 3098, Hamilton 3240
T 07 834 6000 | F 07 834 6100 | lawyers@nwm.co.nz | www.nwm.co.nz
ISSUE 59 | Spring 2021
Welcome to the Spring edition
of Commercial eSpeaking;
the last issue for 2021.
We hope you enjoy reading
this e-newsletter, and find
the content both interesting
and useful. Bonding agreements Lease vs licence Business briefs
If you would like to talk more about any Helping employers recoup Common contractual Unfair contract terms regime extended
training costs arrangements in The Fair Trading Amendment Act 2021, which
of the topics covered, or indeed on
Bonding agreements can be an commercial property was passed in August, bans unconscionable
any legal matter, please don’t hesitate
incredibly useful tool for ensuring Choosing the premises from which conduct in trade and prohibits businesses
to contact us. Our details are on the employers can recoup costs incurred to operate your business can be from having unfair contract terms in their
top right of this page. for training staff that will provide daunting; it is essential that you small business contracts.
employment benefits of higher know you are entering into the right Many welcome new sick leave provisions
skilled and well-engaged staff. type of agreement to suit your In July, minimum employee sick leave
Used improperly, however, bonding intentions. entitlements increased from five days to
agreements may be unenforceable Leases and licences are common 10 days per year.
and – in some circumstances – contractual arrangements.
be a clear breach of the Wages Changes to the retention money
Although both are similar, there
Protection Act. We look at two regime for construction contracts
are crucial differences between
of the most common issues with them which can have significant The new Construction Contracts (Retention
bonding agreements as well as Money) Amendment Bill proposes to change
implications for anyone who owns
what should be considered for the way contractors hold retention money
or occupies commercial premises.
under construction contracts.
enforceable agreements.
PAGE 2 PAGE 3 PAGE 4
Commercial eSpeaking ISSUE 59
Spring 2021 PAGE 2
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Bonding agreements
Helping employers recoup Wages Protection Act 1983
training costs Section 12A of the WPA states that an
Bonding agreements can be an incredibly employer may not ‘seek or receive any
useful tool for ensuring employers can premium’ for employing a person. In a 2016
recoup costs incurred for training staff. case1, it was found that bonding employees
to recoup recruitment costs, such as skills
Used improperly however, bonding
testing, was considered a breach of s12A
agreements may be unenforceable and
as it was the employer who primarily
– in some circumstances – be a clear
benefitted, not the employee. Any bonding
breach of the Wages Protection Act
agreement for training, testing or costs
1983 (WPA). We look at two of the most
incurred by the employer only would likely
common issues with bonding agreements
be considered a breach of the WPA.
as well as what should be considered for
enforceable agreements. Workplace health and safety Making clauses work out or for you both to choose a cheaper
There are many circumstances in which alternative.
What is a bonding agreement? All employers are responsible for ensuring
bonding agreements are appropriate 3. Reasonability: the bonding term and
that they provide a safe environment for
A bonding agreement is a benefit given to and enforceable. repayment schedule should be
their employees. For most businesses reasonable in consideration of the
an employee where you agree to pay for
this means that, at a minimum, each When considering a bonding agreement, costs incurred by the business. For the
some or all of the cost of further training
workplace must have some staff trained the following three basic principles are a majority of bonding terms, a reasonable
in exchange for your employee agreeing
in first aid. In more dangerous workplaces good guideline. timeframe is somewhere between six
to stay under your employment for a
there must be additional measures, 1. Mutual benefit: the additional training months and two years, though there
period of time; this is usually around one
such as training employees in handling being undertaken by your employee are certainly some circumstances where
to two years after the training is complete.
combustible materials or dangerous goods. must be of a mutual benefit to you longer bonding terms are appropriate.
The result is an upskilled employee who
has better qualifications and future both. Another acceptable, but rare, Like many elements of employment
As an employer, if you have insufficient
employment prospects, and your business situation is where the additional training law, bonding agreements are very case
staff members trained in workplace safety
has the benefit of a more valuable is of sole benefit to your employee, such specific. This means that in this article we
and are required to provide training to up- cannot cover all the issues that arise with
employee who usually will stay for the as up-skilling in a different field while
skill existing staff in this area, it is unlikely continuing to work in the current role. them. Any issues in the workplace such
period of the bonding agreement. that you could use a bonding agreement as harassment or constructive dismissal
2. Transparency of cost: costs should
These arrangements can be recorded in to recoup the cost of that training, as it can shake the foundation of a bonding
be agreed as much as possible up-
the original employment agreement or in a is your responsibility to provide a safe agreement. Even when an agreement
front, including how and when those
subsequent document both the employer workplace in the first instance. If any is considered enforceable, there is no
costs will be repaid if your employee
additional training goes above and guarantee you will be able to recover
and employee sign which records the leaves during the bonded term. If
beyond the requirement for safety, and the funds from an employee who leaves
bonding agreement as a formal variation the costs cannot be recorded clearly
significantly improves your employee’s your business.
to the employment agreement that is in the agreement, for example
already in place. future employability, a bond may be valid. accommodation costs while on If you are considering a bonding
training, your employee should be given agreement, whether you are an employer
reasonable notice of the cost before it or an employee, please contact us to
1 Labour Inspector v Tech 5 Recruitment Limited [2016] NZEmpC 167 EMPC 114/2016. is incurred and the opportunity to opt discuss your specific needs. +
Commercial eSpeaking ISSUE 59
Spring 2021 PAGE 3
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Lease vs licence
Common contractual exceptions. The obligations imposed
arrangements in commercial on you under a lease may be extensive,
property but provided you are not in breach of
Choosing the premises from which to the lease, possession of the property will
operate your business can be daunting; stay with you. Under a licence, however,
it is essential that you know you are the opposite is the case. Control and
entering into the right type of agreement possession of the property stays with
to suit your intentions. the owner except where you are granted
certain limited permissions.
Leases and licences are common
contractual arrangements. Although both This is the main area where difficulties
are similar, there are crucial differences can arise in defining leases and licences
between them which can have significant because the name of the document may
implications for anyone who owns or not reflect its true nature. It is not just a
occupies commercial premises. Knowing case of what language is used, but rather
their differences, and when to use each, the content of the agreement, and the
will help prevent any confusion, conflict rights and obligations it creates.
or loss that may arise if you are not fully
informed. Certainty of term
The length of the arrangement is another
Possession or occupation? important point of difference. Leases under a lease and is sold, the buyer buys Deciding whether to enter into a lease
The essential distinction between a lease are typically long-term arrangements the building with the tenant in place. The or licence will therefore depend on your
and a licence is the type of rights they and must be for a fixed period and have tenant can also assign the lease to another intentions for the space. If you want
grant in relation to the property. A lease certainty around the start and end date. party with the owner’s consent through long-term security and exclusive control
grants you exclusive possession of the Even a periodic lease has clear terms a deed of assignment without the new over the property a lease will usually be
property, but a licence only grants the about how and when it can be ended. tenant having to enter a whole new lease. preferable, but it comes with maintenance
right to occupy and use the land. and other obligations and is generally a
A licence, however, can be for an uncertain A licence is different. It is a personal longer term commitment.
‘Exclusive possession’ in a lease situation period and, depending on the terms of the contract between the owner and licensee
means you can exercise control over the licence, can be cancelled by either party and generally cannot be transferred to A licence may be more suitable for short-
property and exclude all others from it, by giving written notice. The advantage another person. If the owner sells the term use where more flexibility is required or
even the owner of the property, except of a lease is that it gives both parties property, the licence will come to an end. where the parties are still uncertain about
where they have a legal right to enter the more security because the length of the their commitment to the arrangement.
premises, for example to complete repairs arrangement is certain, but this in turn Both have advantages A licence is useful, for example, where you
or inspections. Occupation, however, is means it offers less flexibility than a licence. have a pop-up shop or use a space that
a right to use the property for a certain The crucial factor that distinguishes a
is shared by multiple users.
purpose and does not give you the right lease from a licence is the scope of the
Changes of ownership rights, powers and obligations it grants or The important thing is to get good legal
to exclude other people from it.
A lease is a legal interest in land and imposes. A lease generally gives you very advice before you sign on the dotted line
A lease typically grants much wider will survive changes in ownership if the wide powers to deal with the land and so that you can be sure of the rights and
rights than a licence because it gives you owner sells the property. For example, exclude others from it and anything that obligations you are taking on, and the
control of the property subject to some if a commercial building has a tenant falls short of this is generally a licence. agreement fits your particular situation. +
Commercial eSpeaking ISSUE 59
Spring 2021 PAGE 4
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Business briefs Many welcome new sick leave
provisions
Changes to the retention money
regime for construction contracts
One employee’s sick leave may have The new Construction Contracts
Unfair contract terms regime doubled, but another employee’s sick (Retention Money) Amendment Bill
extended to small business leave may still only be five days. How does proposes to change the way contractors
contracts this work? hold retention money under construction
The Fair Trading Amendment Act 2021, contracts.
On 24 July 2021, minimum employee sick
which was passed into law in August, bans leave entitlements increased from five The current regime allows contractors
unconscionable conduct in trade and days to 10 days per year2. Key points for to mingle retention money with working
prohibits businesses from having unfair employers are below. capital, which can result in subcontractors
contract terms in their small business
contracts. When does the entitlement start? Not all missing out on money owed to them if
employees will get the increase in sick days the contractor goes into liquidation. This
The Act amends the Fair Trading Act 1986 at the same time. Employees will get an happened in the liquidation of Mainzeal
in two key ways. extra five days’ sick leave when they reach Property and Construction Limited in 2013.
1. Unconscionable conduct: The legislation their next entitlement date. This is either The proposed legislation aims to put clear
prohibits unconscionable conduct in trade. after they reach six months’ employment rules in place around how retention money
It does not define what ‘unconscionable The legislation defines this as a contract or on their existing anniversary. is to be held to provide protection for
conduct’ is, but it does provide a list of for the provision of goods or services
For example, if your employee’s subcontractors.
factors for the court to consider when between businesses where the value of
the relationship between the businesses anniversary date was 10 June, they Key changes: The Bill proposes that
assessing unconscionable conduct, become entitled to 10 days’ sick leave
including: is less than $250,000 (including GST). contractors must:
on 10 June 2022, but until then, their
+ The relative bargaining power between These two changes will come into force entitlement remains at five days. + Place retention money on trust as soon
the person engaging in the conduct on 16 August 2022. This gives businesses as possible and keep it separate from
just under one year to review their small What remains the same? other money or assets, and
and the person affected by the
conduct business contracts to ensure they comply + Employees who already get 10 or more + Hold retention money in a trust account
with the new requirements. The Commerce sick days a year will not be affected by in a registered bank in New Zealand or
+ The extent to which the trader and an
Commission is expected to release this change in the form of complying instruments
affected person acted in good faith,
guidance on what unfair terms might (such as an insurance policy or a
and + The maximum amount of unused sick
look like for small business contracts.
+ Whether unfair pressure or undue leave that an employee can be entitled guarantee).
influence was used. Be aware, however, that some minor to accrue remains at 20 days, and The Select Committee is expected
changes in the legislation are already + The change applies to all employees to report on the Bill in November 2021.
2. Unfair contract terms: The Act extends in force. whether they are full-time or part-time. Contractors will need to be prepared
the existing protections against unfair
contract terms in standard form consumer If you would like some guidance on how Remember, it’s your obligation as an for the changes when the Bill passes,
contracts to include small business this legislation affects your business, employer to ensure you’re aware of your as failure to comply could result in
contracts. please don’t hesitate to contact us. employees’ entitlements. significant fines. +
2 Holidays (Increasing Sick Leave) Amendment Act.
DISCLAIMER: All the information published in Commercial eSpeaking is true and accurate to the best of the authors’ knowledge. It should not be a substitute for legal advice.
No liability is assumed by the authors or publisher for losses suffered by any person or organisation relying directly or indirectly on this newsletter. Views expressed are those The next edition of Commercial eSpeaking Click here to
of individual authors, and do not necessarily reflect the view of this firm. Articles appearing in Commercial eSpeaking may be reproduced with prior approval from the editor will be published in Summer 2022. Unsubscribe.
and credit given to the source.
©NZ LAW Limited, 2021. Editor: Adrienne Olsen, Adroite Communications. E: adrienne@adroite.co.nz. M: 029 286 3650.
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