What is a Commercial Property Lease?

Posted by Auckland Property Management Ltd on December 20, 2018 | Commercial, News

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Edited by:Howard Morley
Written by:Anita Menzies
Image by:Burnetts Law

When it comes to commercial property management, there are a few different areas of law at work.  The Property Law Act 2007 (PLA), Unit Titles Act 2010 (UTA), Building Act 2004, Health and Safety at Work Act 2015, Employment Relations Act 2000, and even common law can influence your obligations when owning or leasing commercial property.

Most commercial property owners do not realise that a commercial lease is different to a residential tenancy agreement. A commercial lease is governed under the PLA and is considered to be a transaction creating an estate in Real Property.

A commercial lease will have two components; an Agreement to Lease which is a preliminary document recording the offer/acceptance process prepared by a commercial real estate agent and contains the basic information agreed on by the Landlord and Tenant. Then a formal Deed of Lease which is prepared by a Solicitor or Conveyancing Specialist in accordance with the terms and conditions of the Agreement to Lease.  The Deed of Lease will establish the tenant with an Estate in the given commercial property.

Provisions of the Residential Tenancies Act 1986 do not apply to commercial property leases.

Usually included in the Deed of Lease

What is contained in the Deed of Lease will vary, but it is common for the Deed of Lease to include details of:

  • A proper description of the premises & car parking/access
  • The Term (in years) of the lease
  • Rent reviews
  • Responsibility of legal costs in relation to the lease and future documents required
  • Tenant’s obligations as to maintenance and care of premises
  • Landlord’s responsibility for maintenance
  • Reinstatement of premises on termination of lease
  • Renewal of lease,
  • Assignment of the lease
  • Outgoings
  • Insurance
  • Damage or destruction of premises
  • Landlord’s fixtures and fittings
  • Premise condition report

Outgoings/Operational Expenses (OPEX)

Most commercial leases require tenants to make outgoing operational expense (OPEX) payments in addition to rent. Common types of outgoings are; land rates, building insurance, body corporate levies, security costs, and maintenance costs. Generally if it’s a cost relating to the operation of the premise, it can be considered an operational expense (OPEX). Capital expenses are payable by the premise owner, because they go to the root of the land ownership.

Maintenance & Repair Obligations

Very often the case is that tenants and landlords have many queries about liability for repair or maintenance to the premises. The best starting point is to consider the various provisions outlined in the Deed of Lease dealing with both the landlord’s and tenant’s responsibility for repair and maintenance.

Often the case is that the lease could require a tenant to do more than just repair and maintain the commercial property.  Even in a case were the lease does not require the tenant to directly repair or maintain, the case could often be that the broad definition given to the outgoings provision in the lease could require that the tenant reimburse the landlord for costs of carrying out any landlord maintenance obligations under the lease, in addition to complying with tenant maintenance obligations.

Often the lease will also require that tenants carry out obligations which would usually be the responsibility of the unit owner under the UTA. Where this is the case, then the tenant is often accountable to the unit landlord/owner to ensure the obligation is met, and the unit landlord/owner will remain accountable to the body corporate under the UTA.

Our commercial property team can help commercial property landlords reduce or remove any risk to your commercial investment.

Our team can assist you in:

  • Any pre-leasing issues e.g. compliance issues which a prospective tenant may require such as fire evacuation strategy;
  • Reviewing the credit worthiness of a potential tenant or guarantor;
  • Any lease negotiations with a potential tenant;
  • Collecting rent and OPEX or arrears of rent/OPEX;
  • Planning effective management of the property finances e.g. OPEX/CAPEX budgets and cash flow management;
  • Building maintenance/BWOF/fire safety and compliance; and
  • Competitive suppliers and contract management; and
  • Any required management of projects.

Let’s remove the risk with the help of our Commercial Management Team who are focused on providing you with a positive return. Give us a call today on: (09) 638 2500 Or, simply fill in the form below and one of our team will be in touch.

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