If you are interested in leasing your commercial property, or looking to lease one as a tenant, it is important to understand the difference in the documents that are used to enter into commercial leasing arrangements.

Situations regularly arise in which one or other party is surprised, and financially disadvantaged, by not having understood the full ramifications of signing documents commonly used in commercial leasing.

Agreement to Lease

The Tenant and the Landlord will usually first negotiate, and use a ‘standard’ Auckland District Law Society Agreement to Lease to record their agreement. This is usually the preliminary step before entering into a Deed of Lease.

An Agreement to Lease sets out the main terms for the Deed of Lease such the length (or term) of the lease, monthly rent payments, rent reviews, outgoings etc.  

The Agreement can also detail any work that needs to be carried out on the premises by either the tenant and/or the landlord, the fit-out periods, and any other conditions that need to be satisfied before commencing to trade from the premises.

Once signed, the Agreement to Lease is then legally binding on both the Tenant and the Landlord.

Unfortunately, many tenants fail to get their lawyers to review their Agreement to Lease before signing. This can be a massive risk, as it is possible the Tenant does not understand the entire lease and the risks associated with signing it.

One of the major risks for tenants is that under the ADLS Agreement to Lease, a tenant is not able to assign the Agreement to Lease to a third party. Upon signing, tenants are then locked into the Agreement for the term of the lease and cannot easily get out of the Agreement.

The purpose of this clause is to protect the Landlord by preventing the Tenant from assigning the lease and its special terms to someone the Landlord is not prepared to deal with.

Once a Deed of Lease is signed, a right of assignment then applies.

Deed of Lease

The next step is for the tenant and the landlord to enter into the standard ADLS Deed of Lease, which is a separate agreement from an Agreement to Lease.  This lease is usually prepared by the landlord’s lawyer, most commonly on the ADLS Deed of Lease.

A Deed of Lease will contain all the terms negotiated in the Agreement to Lease and provide additional terms which go to the day-to-day operation of the lease and obligations of the parties.

It is important to note that it is not essential to sign a Deed of Lease.

The Standard Agreement to Lease provides that the terms and conditions of a Deed of Lease will apply even if one has not been signed by either the Tenant or the Landlord.

However, it is recommended both the Tenant and the Landlord enter into a Deed of Lease for the following benefits:

  • If a dispute arose between the parties about the lease, the Deed of Lease should be able to provide the parties with a solution.
  • A Deed of Lease allows you to assign or sublet the lease provided you meet the required conditions.
  • If you are selling your business a Deed of Lease will need to be in place.
  • An Agreement to Lease binds you to the terms set in the Deed of Lease, so it is beneficial to be aware of those terms so you know your rights and obligations.

Before entering into either an Agreement to Lease or a Deed of Lease, it is recommended to consult your lawyer first.

They will be able to discuss with you the risks involved in the proposed lease and be able to negotiate any key changes that are required for your circumstances.

Claire Tyler
Commercial Lawyer