Commercial leases – Top 10 tips for tenants entering into a new lease agreement

Property

Shifting premises can be a big job and it is important to get the lease’s details correct from the start. Here are our top 10 tips for a tenant who is entering into a new lease agreement.

  1. Ending your current lease:

    You’ll need to review your current lease to check when its current terms ends and whether you’re required to give your current landlord notice that you’re moving on.

    It is also important to check what your lease states about the condition you’re required to leave your current premises in.

    If you have altered your premises during your lease you may be required to reinstate the premises back to its original layout, and this can include removing your signage. You may also have to replace floor coverings and repaint the internal walls if those items have been damaged beyond what would be considered to be “fair wear and tear”. These works can quickly add up so you’ll need to factor them into your budget.

    We then strongly recommend that you prepare a premises condition report either before or immediately after you move into your new premises. This report should record a snapshot of the premises when the lease commences (including photos). This will hopefully prevent any arguments around how the premises needs to be left when the lease ends.
  2. Fitout of the new premises:

    Will you be able to fit out your new premises to suit your staff and business? Will you be able to put up signage?

    Another key question will be whether you’ll be able to fit out your new HQ after you’ve moved in, or whether you’ll need to keep your current lease on foot (and perhaps pay for two rentals) until the new premises is ready. You may wish to enquire whether your new landlord is prepared to grant you an initial rent-free period while you get up to speed.

    You’ll also need to check whether you will be required to obtain the Council’s consent for any fit out as well as making an allowance for the time and cost of doing so.
  3. Guarantees:

    It is likely that you’ll be required to provide a personal guarantee to back up your company’s lease. If possible you should try to limit your guarantee to a set amount (e.g. 6-12 month’s rental), and have it recorded that your guarantee will cease if the lease is assigned.
  4. Term and renewals:

    Shifting to a new premise is a big commitment so you’ll want to negotiate a long enough lease term and rights of renewal which reflect that. Alternatively it would be prudent to ensure you’re able to assign the lease or sublet space if the new location ends up being less than ideal.
  5. Rent reviews:

    You’ll obviously need to figure out whether the initial rental is affordable, but you should also forecast future rent reviews. For example, a landlord may offer you a reduced rental to begin with, but that the rent may jump considerably when it is next reviewed.
  6. Outgoings:

    We recommend that you obtain an estimate of the likely outgoings before you sign up to a new lease. For example, you may be required to pay the landlord’s insurance premium which could be expensive depending on the building’s condition. Alternatively if you are shifting into a retail centre you might be required to contribute towards the cost of jointly marketing the centre.
  7.  Permitted use:

    Leases often limit the type of business activities the landlord will permit in the premises. As a tenant it may be preferable to list the permitted use as something general like “retail” or “any use permitted under the relevant district plan”. This will allow your business to grow and evolve over time. For example if your lease states that you are only allowed to sell footwear, then this wouldn’t allow your business to expand to sell other fashionwear. It may also limit the number of potential businesses you can assign the lease to if you need to move on before the lease expires.
  8. Car parks:

    It might seem obvious, but if you’ve been residing in a suburban premise your staff and customers may have been spoilt for choice when it came to finding a car parking. When choosing your new premises you may wish to consider whether it is important that your premises has dedicated car parking, or is otherwise close to public transport routes.
  9. Tenancy mix and competition:

    What other businesses are nearby? Will they complement or compete with your business? You may wish to include an exclusivity of trade clause which gives you the sole right to conduct a type of business within the cluster of shops owned by the landlord.
  10. Seek advice early:

    Our 10th tip is that you seek advice as early as possible. Once an agreement to lease is signed it is too late. If you need assistance in ensuring that your new lease is the best fit for your business, then please contact a member of our expert Commercial Property Team or you can contact David Fitchett directly at david.fitchett@cavell.co.nz or +64 3 339 5611.

For further advice on commercial leasing matters please click here.

All Articles

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.