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Commercial Leases - Property Law
Commercial Leases
The prudent position is that all changes to leases and agreements should be recorded in writing and in consultation with your Lawyers. All those documents can thereafter be placed for safekeeping with your original Lease for future reference.
- Rent reviews should be recorded by a Deed of Rent Review;
- Change, alterations and amendments to any Lease terms should be recorded by way of a deed of Variation of Lease.
Why recording in writing is essential?
While recording those items in writing might be considered by some to be minor and unnecessary or unduly costly, the failure to record those items in writing with your Lawyer is likely to cause difficulty in the future when:
- The Tenant attempts to sell its business and assign its lease;
- The Landlord attempts to sell the freehold for the commercial building;
- Either party wishes to raise finance on the security of its business or ownership of the building and the Bank requests a review of all lease documentation.
Outgoings and Operating Expenses
Commercial Leases generally provide for the outgoings of the building (rates, insurance charges and others) to be on-charged to the tenants of the building. The common form of lease for commercial property is the Auckland District Law Society Lease (“ADLS Lease”). The first schedule of the ADLS Lease includes the ability for a set proportion or percentage of the buildings outgoings to be levied to the tenant. That provision recording a percentage of the outgoings also refers to the specific terms and conditions of the Lease.
More often than not, tenants are cautions about the proportion of outgoings recorded in the First Schedule of the ADLS Lease. In fact, the best, safest and backstop position is recorded in clause 3.1 and 3.2 of the ADLS Lease, which provides:
Outgoings
3.1 The Tenant shall pay the outgoings properly and reasonably incurred in respect of the property which are specified in the First Schedule. Where any outgoing is not separately assessed or levied in respect for the premises then the Tenant shall pay such proportion of it as is specified in the First Schedule or if no proportion is specified then such fair proportion as shall be agreed or failing agreement determined by arbitration.
3.2 The Landlord shall vary the proportion of any outgoing payable to ensure that the Tenant pays a fair proportion of the outgoing.
As can be seen from these provisions, ADLS leases make very good provisions for outgoings to be levied and portioned between Tenants fairly and reasonably.
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