Is it the 5th or the 6th? When landlords have a choice between staying with the old lease or starting afresh.
In the last week I’ve had a number of enquiries from commercial landlords asking whether they can, or should, use the 5th edition or 6th edition of the ADLS (Auckland District Law Society) deed of lease.
Generally these enquiries arise because an existing lease is about to come to an end and their tenant wants to extend the lease. Usually the existing lease will be the 5th or earlier edition of the deed. Landlords ask: do we have to use the 6th edition, what are the changes from the 5th edition, is it to our advantage?
The ADLS standard forms are suggested forms only. There’s no requirement to use the most recent form, or any standard form at all. The ADLS forms do, however, provide a good starting point incorporating current standard practice.
So the answer to the first question is “no”, you don’t have to use the 6th edition for a new or extended lease, but your tenants may expect it.
There will be circumstances where the changes incorporated in the 6th edition will be advantageous for the landlord. Sometimes, however, extending the current 5th edition lease may be a better option. There are eight major points you should think about:
The maintenance provisions in the 5th edition are generally more in favour of the landlord.
In the 6th edition the tenant isn’t liable for maintenance costs such as repairs costs caused by design or inbuilt defects in the building, car park repaving and resealing, upgrades required for building WOF or wiring in the walls. The landlord has the responsibility to keep building services, such as air conditioning, lifts, in good order and repair.
The 5th edition provides that legal costs to prepare the deed are all met by the tenant. The 6th edition provides that each party meets their own legal costs.
In the 5th edition the parties could agree to an outgoings percentage that was not necessarily, on the face of it, “fair”. This is more difficult in the 6th edition with a requirement on the landlord to adjust outgoings percentage so it is “fair”.
Under the 6th edition there’s more clarity regarding the landlord’s position at the end of the lease regarding any items abandoned by the tenant, and also a provision that any reinstatement works must be complete before the lease ends. These matters aren’t as clear under the 5th edition.
In the 6th edition the landlord has powers to enter the property and carry out any building upgrade works required by law, and to ask the tenant to vacate the property for the period of the works (with a rent abatement for that period).
In the 6th edition the insurance excess amount has increased, and it also removes any uncertainty about whether the insurance excess is payable by the tenant.
The 6th edition now includes a Consumer Price Index adjustment for rent reviews, while the 5th edition doesn’t have this unless added into the deed by the parties.
Both editions of the ADLS deed of lease are suggested forms only and they’re are both useful starting points for negotiations between landlord and tenant.
Which one you use as your starting point depends on a number of factors and there’s no right answer. It does depend on your particular circumstances and probably the most important of those are the age, condition and maintenance requirements of the property and any potential seismic issues.
For the best answer for you, I suggest any decision is made after you’ve had a discussion with your lawyer.
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.