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Tenants Negotiate Before You Sign Your Commercial Lease

10 April 2012

As a lawyer I’m surprised how often the standard commercial lease published by the Auckland District Law Society is entered into without a thought as to whether all that fine print is going to be helpful if a dispute arises or something unexpected happens.

In my experience it’s not unusual for tenants to underestimate the full implications of the standard commercial lease or to be unaware of the benefits of customising it. The scope of potential changes to this document could be endless, but if you are a commercial tenant, below are my top five changes which you should consider making to your next commercial lease.

Outgoings are the costs in relation to a property that a tenant is required to pay over and above the rent. Many tenants mistakenly assume that rates and insurance are the only outgoings they are required to pay. In fact, the standard lease makes tenants liable for a much broader range of outgoings, including the costs of resealing carparks and repair of the building (which can be high and are usually unexpected). So, change number one is, if you think the only outgoings you will pay are rates and insurance, make sure all the rest are deleted. If you are to pay for a broader range of outgoings you should consider each of the outgoings and modify or delete them as required.

The second change you should consider is inserting a provision to ensure that the landlord has to keep the premises water proof and replace any building services such as lifts and air conditioning when repair is no longer economic. Without that change, there is no express obligation on the landlord to repair leaks or replace lifts and air conditioning when they require replacement.

Amongst the many things lawyers have learned as a result of the Christchurch earthquakes is that the standard commercial lease doesn’t cope well with the practical realities of a disaster. Change number three is inserting a clause which allows a tenant to cancel the lease if for a reasonable time the premises are inaccessible or incapable of being used. This also allows leases to be cancelled where premises which are undamaged, but unreachable, inside a cordon.

The standard lease requires you to remove at the end of the lease any alterations you’ve made to the premises. This is called ‘reinstatement’. Reinstatement usually involves substantial cost and can result in unpleasant consequences if not enough time is set aside before the end of the lease to do the work. For change number four, if you don’t intend to reinstate after you leave, then this obligation should be deleted.

The final change for consideration is limiting your liability as a tenant or a guarantor after assignment of the lease. If you assign the lease to another tenant you will have to pay the landlord for any losses arising from a breach of the lease by that tenant or any future tenant to whom the lease has also been assigned. While your liability as a tenant or guarantor will typically cease once the lease ends or that future tenant has renewed the lease, if you want to be sure you won’t end up paying for the actions of others, this change should be made.

Customising your lease must be done at the outset as it’s legally binding and it’s too late to make changes once it’s been signed. Do talk with your lawyer, however, if you want to customise your next lease.

 

Dan Moore is a partner of Norris Ward McKinnon. Information in this article should not be a substitute for legal advice. With offices in Hamilton and Huntly, we have friendly, expert legal advisors ready to help you with your business and personal legal matters.