When a businesswoman launched her consulting company and needed to rent commercial office space, she initially signed an Agreement to Lease prepared by the agent. Subsequently, the landlord sent her a Deed of Lease to sign. Seeking legal advice, she learned about the essential terms in a Deed of Lease.

A Deed of Lease consolidates all terms negotiated in the Agreement to Lease and provides additional terms for the lease’s day-to-day operation. Typically, the Law Association Deed of Lease template is used.

Key Terms in a Deed of Lease

1. Premises Description

– Accurate description of the leased property boundaries.

– Attach a plan to the Lease to avoid disputes about inclusions.

– List car parks separately and show them on the plan.

2. Term

– Refers to the initial lease term, excluding rights of renewal.

– Varies by industry and the parties’ certainty needs (e.g., 20-year term for motels, 1-2 years for new businesses).

3. Rights of Renewal

– Specifies any rights of renewal and the renewal dates.

– Tenant can opt to renew, and the landlord must comply unless the tenant breaches the lease.

4. Rent

– Includes the annual rent payment, excluding GST.

– Details annual and monthly rental amounts and payment dates.

– May include incentives like a rent-free period or fit-out contribution.

5. Rent Review

– Specifies rent review dates and methods (market rent reviews, CPI adjustments).

– Ensures rent adjusts to inflation or increases gradually over time.

– Fixed percentage increases require an amendment to standard Lease terms.

6. Default Interest Rate

– Interest rate applied to late rent and outgoing payments.

– Typically ranges between 8-14%.

7. Business Use

– Defines the type of business permitted in the premises.

– Should be drafted broadly to allow business growth without restrictions.

8. Insurance

– Landlord’s obligation to insure the building against common risks (e.g., natural disasters).

– Parties can agree on additional cover.

– Clarify conditions covered to allow tenant to secure additional protection.

9. No Access Periods

– Clause inserted after the Christchurch earthquake.

– Allows lease termination if the tenant cannot access the premises for a certain period due to reasons other than destruction or damage.

10. Outgoings

– Costs related to the property that the tenant must pay, separate from rent.

– Includes rates, building services, repairs, car park maintenance, and body corporate charges.

11. Other Terms

– Dispute Resolution: Outlines procedures for resolving disagreements.

– Assignment: Lease can be assigned to a third party with landlord consent.

Importance of a Deed of Lease

While not essential, signing a Deed of Lease provides clarity and is often required in specific instances (e.g., selling a business, landlord selling the property, seeking finance). The Law Association Deed of Lease terms apply even if not signed, so familiarity with these terms is crucial.

Legal Advice

Both parties should obtain independent legal advice before entering an Agreement or Deed of Lease to understand their obligations. Leading law firms offer fixed-price Initial Consultations to help clients understand their options quickly and cost-effectively. Contact our team for professional guidance on your lease agreements.