Changes to commercial lease documentation – What you need to know

25 April, 2013 | Peter Smith

What has changed?

If you are a commercial landlord you need to be aware that the most common form of deed of lease used in Auckland (being the Auckland District Law Society Deed of Lease) has been updated and now contains significant changes.

This article provides an overview of the major changes from the previous edition of the lease.  Follow up articles in the next few weeks will provide a more in-depth review of each of those changes.

Description of premises

Previous editions of the Lease have distinguished between the landlord’s premises and the landlord’s fixtures and fittings.  The definition of “premises” has been changed to include all of the landlord’s fixtures and fittings.  This change also affects the “maintenance” and “defects” provisions of the lease.

Outgoings

The outgoings list in Schedule One has been amended to reflect changes frequently made although no material changes have been made.  These changes are:

• the insurance excess amount has increased from $500.00 to $2,000.00 to reflect current practice;
• maintenance charges have been amended to exclude any repairs due to defects in design or construction, inherent defects in the building and renewal or replacement of  building services;
• “re-paving” or “resealing” of carparking areas and yards has been excluded; and
• compliance costs to upgrade the property to comply with the Building Act 2004 are excluded.

It is now mandatory for the landlord to assess the portion of outgoings that apply to each tenancy in the building (where the entire building is not held as once tenancy) where they are not separately assessed.

Rent Review

A CPI (Consumer Price Index) rent review provision has been included in the First Schedule either as an alternative to or in addition to the market rent review.  Subsequent provisions in the lease dealing with rent review calculations have also been amended to take this into account.

Market rent reviews are no longer the default method on a renewal.  Either market or CPI can be selected.

Actual Rent Review dates must be set out, not just shown as “on renewal”.

Default interest

There is now a default position as to what penalty interest is payable by the tenant for non-payment of rent and/or outgoings if no default interest percentage has been provided for in the lease.  This is consistent with amendments that have been made to the Auckland District Law Society/Real Estate Institute of New Zealand form of Agreement for Sale and Purchase of Real Estate.

Costs

The lease now provides that each party will bear their own costs in relation to the negotiation and preparation of the lease.  The previous edition provided that these costs were to be met by the tenant.

Tenant’s maintenance

The tenant’s maintenance provisions have been tidied up and are now clearer.  There is now also a provision for a “condition report” to be attached to the lease as evidence of the condition of the premises at the commencement date. This is optional but recommended.

Landlord’s maintenance

The landlord is now required to keep the building “weatherproof” in addition to other maintenance items.

The landlord has always been required to maintain all of the buildings services however the term “building services” has been re-defined.

Building services that cannot be maintained in good order through maintenance are required to be replaced by the Landlord if “reasonably” required.

Alterations, additions, reinstatement and chattels removal

These provisions have now been grouped together which makes sense.

There is a time period by which the tenant is to reinstate the premises which is no later than the end of the lease term or earlier (if the lease is terminated before the end of the lease term).  Previous editions of the lease were unclear as to whether reinstatement could take place after the end or earlier termination of the lease.

Insurance

The insurance provisions have now been grouped together and minor amendments have been made in relation to the landlord’s insurance.
Specific amendments were not made as a result of the Christchurch earthquakes so landlords in this jurisdiction will need to tailor their insurance requirements in the lease.

Implied terms

Any provisions implied under the Property Law Act 2007 no longer apply.  Some of these provisions that were previously implied are now expressly provided for in the lease document itself.

To ensure that your lease agreements are working for you as a landlord, contact commercial property specialist, Wade Hansen today by phone on 09 837 6885 or email wade.hansen@smithpartners.co.nz