Commercial leasing

Property

Since the earthquakes, commercial leases in NZ have become increasingly complicated, signing an Agreement to Lease is often a long term commitment for both the landlord and the tenant, and it pays to have the terms checked by a lawyer before you sign.

Signing an Agreement to Lease is often a long term commitment for both the landlord and the tenant, and it pays to have the terms checked by a lawyer before you sign.

Since the earthquakes, commercial leases in NZ have become increasingly complicated, and while it may be tempting to sign an Agreement to Lease with no legal review, the Agreement to Lease you sign usually contains a clause which binds you to the terms of a 20 plus page Deed of Lease. What this means is that in signing an Agreement to Lease, you are signing up to a range of commitments (reinstatement, maintenance, repair, access for works by the landlord etc) which may not suit your particular needs – and could be expensive and inconvenient!

One (of many) points to note is that the commonly used Auckland District Law Society (ADLS) Lease allows for the termination of the lease in the event of a natural disaster where the damage caused by that disaster “totally destroys” the premises, or partially destroys the premises and the premises cannot be rebuilt. Until the most recent version of the ADLS lease this was the only provision the landlord and tenant could rely on in terms of damage or destruction of the premises.

An issue that came to light in the wake of the Canterbury earthquakes was premises being inaccessible due to reasons of public safety (although the premises themselves were undamaged or were able to be repaired under the provisions of the lease).

The most recent version of the ADLS Lease now provides that in the case of an emergency where a tenant is unable to access the premises to operate their business due to public safety (including a restricted access cordon, prohibition on the use of the premises pending completion of structural or other reports and appropriate certifications by the relevant Council or authority, and restriction on the occupation of the premises by the relevant Council or authority) then a fair proportion of rent and outgoings shall cease to be payable from when the tenant could not access the premises until the tenant is again able to fully conduct its business from the premises.

Of course, as many people are aware, the central city red zone was inaccessible by both tenants and landlords for much longer than anticipated. The second part of the “no access” provisions in the new ADLS lease now provide for a set “no access” period. The default period is 9 months, and at the expiry of this period where the premises still remain inaccessible either party may terminate the lease by giving 10 working days written notice.

When drafting a lease some thought is required as to whether this 9 month default period should be amended to a longer (or shorter) time frame. This will depend on the term of the lease, the renewals availiable and the rental involved as well as whether you are the landlord or the tenant – the tenant may want a shorter time period and the landlord may want a longer time period.

There are many things to consider when signing up an Agreement to Lease and we are happy to talk through the various legal issues with you.

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Copyright © Cavell Leitch. All rights reserved. Redistribution is only permitted with express written permission. For enquiries please contact us. This article by its nature cannot be comprehensive and cannot be relied on by clients as advice. It is provided to assist clients to identify legal issues on which they should seek legal advice. Please consult the professional staff of Cavell Leitch for advice specific to your situation.