Where a lease term ends, there are a number of obligations that arise on the part of both the landlord and the tenant. One of these is the tenant’s obligation to hand back the premises in the same state they were at the start of the lease. This is generally referred to as the tenant’s reinstatement obligation.
Under the commonly used sixth edition Auckland District Law Society (ADLS) Deed of Lease, the tenant must reinstate any alterations, additions or improvements they might have made to the premises during the term of the lease; for example if a kitchen has been fitted or partition walls have been installed, the landlord can require that these are removed at the cost of the tenant. Any damage that is caused during the reinstatement will also need to be repaired.
As the term of commercial leases can run for many years, it can sometimes be difficult remembering what condition the premises was in when the lease originally commenced. Therefore it’s imperative that a landlord and tenant agree, at the outset, on a detailed record of the premises’ initial condition. One of the simplest ways to achieve this is to take photos of the premises and attach them to your lease when it’s signed.
If you’re taking on an assignment of a lease, it may not be easy to determine the original condition of the premises at the time the lease was originally entered into. Therefore, if you are thinking of taking on an assignment of a lease, it’s important to discuss with the landlord their understanding of the requirements and standard for any reinstatement.
If you’re considering leasing a commercial property, you must carefully consider your potential reinstatement obligations. If you’re planning to make substantial improvements to the premises, then it may be wise to negotiate a waiver to the right of reinstatement or compensation from the landlord for any expenditure in relation to improvements, as it can sometimes be of mutual benefit that the premises are improved.
We strongly advise that before entering into a Deed of Lease for a commercial property, you seek legal advice to ensure you are fully aware of all your rights and obligations as a tenant.
Phil Hyde is a Partner in the Corporate & Commercial Team at Norris Ward McKinnon. you can contact Phil at [email protected]
