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The importance of lease maintenance – getting your ducks in a row

The importance of lease maintenance – getting your ducks in a row

Published in April 2018

As an owner/occupier of a commercial property, maintaining your leasing documentation is crucial.

It is easy to underestimate the importance of keeping up with the administration that comes with owning a property. Importantly, with a commercial property it pays to ensure your leasing arrangements are up to date and remain legally effective.

As an owner/occupier of a commercial property, maintaining the leasing documentation is crucial so that when it comes time to sell the property or to lease the premises to another party the due diligence process can run smoothly; and a purchaser or assignee can be clear about the rent, outgoings and obligations under the lease.

As a landlord it is critical to ensure all rent reviews, renewals of the term of the lease, and variations to the lease are documented correctly, so that you can enforce your rights, and it is clear what rights of the tenant and landlord have been agreed.

Top tips for getting your leasing ducks in a row:
1. If you have signed an Agreement to Lease – this is binding, contemplates the execution of a Deed of Lease and locks in the lease once certain conditions are met. Having a Deed of Lease in place means the right to use the premises can be assigned to another party (with the requisite approvals). Make sure you follow up and complete the Deed of Lease which sets out the commercial terms of the Lease as well as the day to day operational conditions of the lease. Please note that the standard Agreement to Lease (Auckland District Law Society -ADLS) effectively applies the terms and conditions of a standard Deed of Lease (ADLS) even if one has not been signed.

2. Be aware of your notice period for the exercise of any rent reviews and for the renewal of the terms of the lease. If a landlord fails to give notice in the agreed timeframe the landlord may be letting the opportunity for a rent review lapse or may not be able to increase the rent from the rent review date. Please note that the most commonly used form of lease (ADLS) has a 3-month window for the rent review to apply from the review date, otherwise the rent can only be reviewed from the date of the service of the notice advising of the review. Any agreed rent reviews should be documented by a Deed of Rent Review to record the new level of rent. Having evidence of the rental amount in writing is crucial in the event of refinancing the business or if either party wishes to assign the lease to third party. The deed must be signed by the landlord, tenant and guarantor (if any).

3. A right of renewal is an option exercised by the tenant to enter a new lease and the landlord must agree to the renewal provided certain pre-conditions set out in the lease are met. Again, there is a pre-defined notice period in most leases, by which time a tenant needs to advise the landlord in writing of its intention to renew the lease. A Deed of Renewal of Lease is usually entered into to record the terms of the new lease. In instances where no formal communication of the renewal is made by the tenant it may be implied that a renewal has taken effect. For example if a tenant forgets to give notice or there is correspondence about the renewal but no formal notice but both parties continue to act under the terms of the lease or their conduct may suggest that the right of renewal has been exercised i.e. to pay rent and to accept the rent payments, then it may be implied that a renewal has taken effect. If there is no formal renewal there may however be some argument as to whether the tenancy is a month by month tenancy, and whether either party can cancel the lease with 20 days’ notice to the other, at which time the tenant would be required to provide vacant possession of the premises.

4. Often throughout the terms of a lease the landlord and tenant will agree to variations of the lease provisions without formally documenting them. However, it is recommended for the purposes of enforceability and to ensure that any assignees are aware and bound by any variations, that the parties enter into a Deed of Variation of Lease to record the agreed changes in writing.

If you need any assistance with your lease administration or have any queries about your lease, please contact us. We can review your documentation and advise what steps are needed to get your documents up to date or assist you in negotiating and preparing the terms of your lease.

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