Commercial leases: The new ADLS deed of lease

New version of popular commercial deed of lease

The Auckland District Law Society released its revised 6th edition 2012 deed of lease form in November 2012. 

Key changes include:

• CPI rent review option – this allows for a set formula to calculate rent adjustments in line with changes in the Consumers Price Index;
• Bank guarantee – on an assignment (transfer) by the tenant of the lease to another incoming company tenant, the landlord now has the option to require the incoming tenant to provide a bank guarantee;
• A premises condition report is prepared at the commencement date of the lease to provide evidence of the condition of the premises. This assists in the reinstatement obligations of the tenant on termination of the lease;
• Costs – The new deed of lease provides that each party (landlord/tenant) meets its own costs for the negotiation and preparation of the lease and any variation or renewal. Previously the default position was that the tenant was responsible for these costs – a convention inherited from the English system;
• Proportion of outgoings (operating expenses or opex) – if the percentage of outgoings payable by the tenant is unfair, the landlord must now vary the figure;
• The improvements rent percentage has been removed. This allowed the landlord to charge to the tenant by way of an increase in rent a certain percentage of the capital spent by the landlord if the landlord was obliged to by law;
• Access for repairs – these provisions are expanded as a result of issues arising in Christchurch. Landlords now have access to their building to ensure the building is brought up to current earthquake standards;
• No access – new provisions are included to deal with circumstances where a natural disaster occurs and where the premises are undamaged but cannot be accessed. In these circumstances the tenant is entitled to a rent reduction and if the restrictions on access extend beyond a specified period the lease may be terminated;
• Where the premises are a unit title, the tenant must comply with the rules of the body corporate and the provisions of the Unit Titles Act to the extent that they apply to the tenant’s use of the property. Landlords are now obliged to keep premises weatherproof; and
• Insurance excess – the amount payable by the tenant as an opex item has increased to $2,000. 

Summary

The new form is more user friendly and has more modern language. It is also more fair between landlord and the tenant. We consider the new form to be an improvement over its predecessor. However, it would be unwise to treat the standard form as a “one size fits all” document. If you are considering entering into an agreement to lease or deed of lease we strongly recommend you seek legal advice before doing so.

If you would like further information please contact Dale Thomas on 07 958 7428.