The Law Association (previously Auckland District Law Society/ADLS) have released the Seventh Edition Deed of Lease form, commonly used in commercial property leases across New Zealand.  The Agreement to Lease has also been updated in a similar way.

Alongside a broad-brush drafting update, there have been several new clauses, which are summarised here.

Renewals

A standard renewal notice period is now recorded in the First Schedule as three calendar months before the end of the term, with the ability to customise this timeframe if preferred.

Premises and Carpark description

Reference is now made to a plan (if any) being attached to the Eighth Schedule.  Many legal advisors and agents generally insisted on a plan being added to a lease, so this reflects what had previously been recommended practice but was not formally part of the lease.

Rent Reviews

An option for ‘fixed rent adjustment dates’ has been added to the First Schedule, which reflects the fact that many leases have regular base rent increases as well as market rent increases.

There are options for different rent ratchets (upper and lower rent limits) included.  These include ‘hard’ and ‘soft’ ratchets, detailing whether the rent can drop below the rental at the beginning of the lease versus the beginning of the then-current term. 

There is an option to choose how the interim rent is worked out.  The options are either that the current rent is the interim rent, or it is determined by registered valuers’ certificates.

Outgoings

The new edition makes some clarifications to various outgoings payable by the Tenant, including that Tenants are responsible for fire and emergency levies, service maintenance contracts for roller doors and automatic doors and reasonable management administration expenses for Body Corporates. 

There are also further restrictions on the Landlord’s ability to recover outgoings within 24 months of the outgoing being incurred.

Landlords are now also required to provide a detailed outgoings budget for the following year, with Tenants able to request supporting evidence of this under the Lease.

Insurance

There is an option to record insurance excess amounts payable by the Tenant in a new clause in the First Schedule, with an otherwise ‘standard’ maximum excess amount payable being set at $5,000.

Tenant’s Maintenance, Reinstatement and “Make Good” Obligations

The reinstatement, removal and “make good” provisions have been re-worded to clearly separate out obligations regarding the premises and signage, as well as make the position clear regarding additions or alterations made during the term.

Essentially a tenant needs to yield up the premises in the same clear order, repair and condition that they were at the commencement of the lease, fair wear and tear from reasonable use excepted.  The Tenant must remove all their fixtures, fittings and chattels.

Alterations and additions must be removed at the Tenant’s cost.  If this is not done, as was the case with the previous version of the lease, ownership of such alterations and additions reverts to the landlord at their election or the landlord may remove them to a refuse centre.  Any costs incurred by the Landlord related to reinstatement of the premises within 6 months from the end date of the Lease are recoverable from the Tenant. 

No Access in an Emergency and Abatement of Rent

Where the parties have agreed to a rent abatement in the event of a ‘no access in emergency’ situation (such as Covid-19 lockdowns and Christchurch earthquakes previously), the parties are able to agree to what a ‘fair proportion’ of such an abatement may be.  If no figure is agreed upon, the default ‘fair proportion’ is set at 50% abatement of rent and outgoings.

Security Provisions

There are now various options included in the First Schedule for security the Landlord can take.  The options are:

• Bank Guarantee: This involved the Tenant’s bank holding this sum on behalf of the Tenant (which must be released to the Landlord in a default).  If a bank guarantee is elected as the option but no amount is specified, it is set at an amount equivalent to three months’ rent plus GST.
• Rental Bond: This is an amount paid to the Landlord as a bond. If a rental bond is elected as an option but no amount is specified, it is set at an amount equivalent to three months’ rent plus GST.

These options have also been added as options in relation to granting a new lease and consenting to an assignment/sublease.

Note that a non-bank guarantee (that is, a personal guarantee from the director or shareholder) remains an option and the provisions around such guarantees have been largely unaltered.

Mortgagee Consent: The Lease now requires the parties to specify whether they require mortgagee consent to be obtained to record the Tenant’s interest in the Lease.

Seismic Rating

Explicit provisions relating to the seismic ratings are now included, requiring the Landlord to disclose the NBS (seismic) rating and any information that they become aware of that contains a ‘materially different’ assessment to the recorded NBS rating of the property.

It is important to note that parties must opt-in to these terms, otherwise they do not apply.

Health and Safety Obligations

The parties’ obligations relating to health and safety including an obligation to comply with the Health and Safety at Work Act 2015 are recorded in the Deed of Lease.

Landlord’s Consent to Additions or Alterations

If the Tenant wishes to make alterations that are non-structural, the landlord’s written consent is required, which must not be unreasonably or arbitrarily withheld or delayed if plans and specifications are provided. 

However, if a Tenant seeks consent to make alterations to the property which trigger a requirement to upgrade the building more widely, the Landlord may refuse consent unless the Tenant meets all associated costs of those upgrades.

Summary

This new edition of the Deed of Lease contains a thorough set of robust changes to some key terms within the Lease.  The changes reflect sensible and recommended practice in terms of matters that legal advisors would canvass with their clients and should leave less room for ambiguity when drafting such documents.

If you are considering entering into a lease it pays to take legal advice to ensure you fully understand your options and obligations.

Leading law firms committed to helping clients cost-effectively will have a range of fixed-price Initial Consultations to suit most people’s needs in quickly learning what their options are.  At Rainey Collins we have an experienced team who can answer your questions and put you on the right track.