Commercial Leasing: the importance of reading and understanding your Lease…before you sign!

A business owner found the perfect premises from which to operate his cafe.  The landlord presented him with a lease agreement which he signed straight away because he was so excited to move in. 

Things went well until the business owner made a mistake and missed a rental payment. Suddenly he started receiving demands from the landlord for extra payments that he had not expected.  The landlord said these were penalty costs for defaulting on his payment and pointed to where in the lease agreement these were set out. 

Frustrated, the business owner decided he wanted to terminate his lease and vacate the premises.  When he talked to his landlord about it, the landlord pointed out that he had agreed to a lease period of three years, so had another two years left to run. The lease agreement set out that if he wanted to terminate the lease any earlier the business owner would have to pay the full amount of rent owing until the end of the lease period, plus several other penalty costs. 

The business owner got in touch with his legal advisor to ask for help to try to get out of the lease.  Unfortunately, there was nothing the legal advsorcould do to help.  By signing the lease he had agreed to the terms which, although unfair, were not illegal.

When entering into a commercial lease, it is vital to make sure you understand all the terms of the lease agreement before you sign. 

Leases can be lengthy and complex.  Many commercial leases are drafted using the Auckland District Law Society standard form, which is considered the gold standard format and is used throughout the business community.  Some landlords prefer to use leases drafted in a different format, which requires extra care to identify any changes from the standard form. 

It is extremely worthwhile having your legal advisor review a lease before you sign it to ensure there are no catches or fish hooks.  Putting in this work at the outset can save you heartache later on, as it is usually too late to make changes or negotiate on issues once the agreement has been signed.