A tenant was negotiating with his landlord regarding the market rental for a commercial building as a rent review was due. 

The landlord and tenant had each obtained their own valuation of market rental, as required by their lease agreement, but the valuations came back with quite different values – the tenant’s valuation being significantly lower.   They had involved their lawyers to try to reach agreement as to what the rent for the next term of the lease would be.

They were in the midst of negotiations when the tenant telephoned the landlord to complain about a leak in the roof. During the conversation they began talking about the rent review. 

In that conversation, the tenant believed the landlord had agreed that the rent for the next term would be based on the tenant’s valuation, in recognition of the leak in the roof and various other issues with the building that had been raised by the tenant throughout the term of the lease.

When the tenant’s lawyer followed up with the landlord’s lawyer to confirm that the rent had been agreed at the lower rate, the landlord’s lawyer disputed this and said that the landlord had not agreed to it.  They insisted that the rent needed to now be determined by arbitration, which would result in a large expense for both landlord and tenant.

Fortunately the tenant had kept written notes of the conversation with the landlord which, once sent to the landlord’s lawyer, prompted the landlord to recall that he had actually agreed to the tenant’s valuation.  The rent was agreed to be at the lower rate.

It is dangerous to agree to anything relating to a commercial lease (or any other contract) orally.  Matters can easily become confused when discussed over the phone, particularly if one party is more commercially savvy than the other, or if there are language barriers.  It can become a matter of ‘he said, she said’, with either sides’ version being very difficult to prove.

All agreements in relation to leases should be in writing.  In the above case, the parties should have agreed that one would email the other to confirm their conversation, with the other acknowledging that agreement by return email.  From there, they should have signed a document recording their agreement on the rent review.

It is especially important to have your lease arrangements in writing if you are looking to sell a building (as a landlord), sell a business or assign a lease (as a tenant), as purchasers/assignees will need this information clearly recorded.

If you are uncertain about your obligations under a lease, it pays to take legal advice.

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 option are.  At Rainey Collins we have an experienced property and business team who can answer your questions and put you on the right track.





Claire Tyler
Commercial Lawyer
Wellington


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