Commercial Leasing

Steven Duxfield from Corcoran French

Commercial Leasing
The terms of a commercial lease are vastly different to that of a standard residential tenancy agreement. It would be impossible for us to outline all the terms of a typical commercial lease in this article but we outline a few of the common issues and queries which commonly arise between both Tenant and Landlord.
Agreement to Lease

An Agreement to Lease is the initial document signed between the parties setting out the main terms of agreement between them. It is not the formal lease document. The Agreement to Lease usually requires a formal deed of lease be entered into setting out all of the terms, rights and obligations of the parties and enforcement provisions. Many clients mistakenly believe that once they have signed the Agreement to Lease, this is the formal contract. The Agreement to Lease does not contain all of the necessary provisions required to protect both parties which are contained in the full deed.

Costs

Recent revisions of the Auckland District Law Society (ADLS) commercial lease removed the ability for a Landlord to charge the Tenant for the Landlord’s legal costs for preparation of the lease documents. Each party now bears their own costs for the preparation, variation or deed recording a rent review or renewal unlike the earlier versions which made this a Tenant responsibility. The Tenant is still required to meet the Landlord’s reasonable costs in considering any request by the Tenant for the Landlord’s consent as well as the enforcement of the Landlord’s rights, remedies and powers.

Maintenance Obligations

Generally speaking a Tenant is responsible for maintaining the interior of the premises and is required to yield up the premises in a like condition as at the start of the lease. The Landlord is usually responsible for maintaining the exterior of the building and ensuring that it is weathertight. Often having a premises condition report attached to a lease when signed will avoid any possible disputes at the end of the lease. This report is very useful in situations where a Landlord has sold the premises, or the Tenant has sold the business and assigned the lease to a new Tenant.

Renewal of Lease

Often we see both the Landlord and Tenant fail to deal with subsequent renewals of the lease according to the lease terms. The standard provisions of the ADLS lease provides that where the Tenant intends to exercise its right of renewal (if one is provided) it must provide written notice to the Landlord of its intention to exercise its renewal no later than three months prior to the expiry of the current term. If a Tenant fails to provide that notice, the Landlord can terminate the lease on the final expiry date. However, if neither party take any steps the lease will revert to a month to month lease until either party terminates with one month’s notice.

Dealing with renewals correctly is important from both parties’ perspective. For the Landlord it ensures that a Tenant is locked in for a specified period of time and provides it certainty of future rental income.

From a Tenant’s perspective it provides security of site which is especially important where the location of the premises is a fundamental part of its goodwill. If a Tenant fails to properly execute or exercise its rights of renewal the value of its business could be drastically reduced.

Commercial leases can be complicated and both Landlord and Tenant are considered equal commercial parties. It is therefore important that both parties understand their obligations.

If you would like some specific advice in relation to your lease or a particular situation we suggest that you contact us and we can provide you with some further advice in this regard.

Michael is an Associate in our Property Team based in our Kaiapoi Office and can be reached on (03) 327 8159 or by email michael@corcoranfrench.co.nz