What is a Deed of Lease?

1 February, 2018 | Kristal Rogers

A Deed of Lease is the formal document entered into for a commercial property by the tenant and landlord after an Agreement to Lease is signed. It is prepared based on the information contained in an Agreement to Lease after terms have been reached by the landlord and the tenant, whether orally or in writing.

What detail is included in the Deed of Lease?

What is contained in the Deed of Lease will vary, but it is common for the Deed of Lease to include details of:

• A proper description of the premises & car parking/access
• The Term (in years) of the lease
• Rent reviews
• Responsibility of legal costs in relation to the lease and future documents required
• Tenant’s obligations as to maintenance and care of premises
• Landlord’s responsibility for maintenance
• Reinstatement of premises on termination of lease
• Renewal of lease
• Assignment of the lease
• Outgoings
• Insurance
• Damage or destruction of premises
• Landlord’s fixtures and fittings
• Premise condition report

Leases are not completely “standard”. There are several commercial leases in circulation. The mainly used form is the Auckland District Law Society (ADLS) form. Each form of lease is reviewed and republished regularly. With each edition there are slight amendments. It is important to know which edition of a lease is to be signed or has been signed.
Previous editions consisted of some clauses favouring the tenant and some clauses favouring the landlord. An example of this is the landlord’s costs of negotiating and preparing the Deed of Lease. This used to fall solely on the tenant but the current edition of the ADLS Lease provides each party bear their own cost.

Why do you need a Deed of Lease if your have a written Agreement to Lease?

Selling the business or selling the property

A Deed of Lease is important to have in place if you are considering selling your business or selling your commercial property as a landlord. It is unfortunately more common than it should be for landlords or business owners getting their lease paperwork up to date only when they have an agreement to sell.

Also when the landlord is aware the business is being sold this is usually the time that they want to have all maintenance, repairs etc. resolved, which may also include outstanding rent reviews. There are “gentlemen’s handshakes” with regard to leases out there but when it comes time to put pen to paper there is not always consensus.

When you sign an agreement to lease you are bound by the terms of the deed of lease referred to in the agreement.

Borrowing finance

A Deed of Lease may also be needed if the tenant or landlord is borrowing money from their bank.

Confirmation of dates

The Agreement to Lease may have conditions for certain matters which need completing or complying with by a specific date before the start of the lease. This will mean that a commencement date will not be set until those matters are completed. A Deed of Lease will be the document that records the final commencement date, renewal dates, rent review dates and termination date of the lease.

Certainty of tenure

Many business are location dependent. It is accordingly important to have a good sound commercial lease that gives the business the security of remaining in its location for as long as possible.

Certainty of chattel ownership

A Deed of Lease also provides certainty of ownership of chattels and what is capable of being sold during the sale of the commercial property; and on the flip side, if the business is being sold, the chattels not owned by the landlord and capable of being sold by the tenant with the business.

When should a Deed of Lease be signed?

It is always recommended that the Deed of Lease be signed before the tenant takes possession of the premises.

Whether you are looking to lease commercial property or want to ensure your lease works for you, we can help you negotiate the best lease for your situation. Contact NZ commercial property law expert, Kristal Rogers by phone on 09 837 6833 or email kristal.rogers@smithpartners.co.nz for assistance today!