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Commercial Leases

This publication guides practitioners through the negotiation and drafting of commercial leases, including provisions for subleasing, assignment, and termination.

1 Matter Plan

Overview

This commentary covers all aspects of commercial leasing, including negotiation, drafting, registration, renewals, assignments, subleases, termination, common disputes, and remedies.

The Reference materials folder includes guidance on electronic signing and remote witnessing, and the Getting the matter underway folder contains essential compliance and client engagement documents. The comprehensive Retainer Instructions ensure that all necessary information is gathered from the client at the outset of the matter.

Precedents in this publication include:

  • Agreements to lease;
  • Deeds of lease;
  • Library of additional clauses for the lease;
  • Library of notices for various situations;
  • Deeds of variation, amendment and assignment.
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1 Matter Plan Included

  • Item icon ALERTS - Nil
  • Item icon Full Commentary - Leases
  • Folder icon Reference materials
    • Item icon AI Prompts
    • Item icon Electronic Signing and Witnessing
    • Item icon Further information
  • Item icon Overview
    The owner of real estate can create a lesser estate in their property by granting a leasehold interest to a lessee that gives the lessee the sole right to use and enjoy the property. The owner granting a leasehold interest, the lessor, retains a reversionary interest, that is, ownership of the ...

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  • Folder icon A. Getting the matter underway
    • Item icon File cover sheet - Leases
    • Item icon To do list - Leases
    • Item icon First steps
    • Item icon Client details and verifying identity
    • Folder icon Client authority and instruction form
      • Item icon Electronic land transactions
      • Item icon LINZ Authority and Identity Requirements for E-Dealing Standard 2018 – LINZS20018
      • Item icon Certification of Electronic Instruments (Statutory Requirements and Retention of Evidence) Standard 2018 – LINZS20012
      • Item icon Authority and instruction (A&I) from private individual client for an electronic transaction
      • Item icon Authority and instruction (A&I) from private corporate client for an electronic transaction
      • Item icon Authority and instruction (A&I) from public corporate client for an electronic transaction
    • Item icon Retainer instructions - Leases
    • Item icon Conflict of interest check
    • Item icon Initial letter to client with Client Care and Terms of Engagement
    • Item icon Client Care and Terms of Engagement
    • Item icon Conveyancer Client Care and Terms of Engagement
    • Item icon Scope of work - Lease - Acting for the lessee
    • Item icon Scope of work - Lease - Acting for the lessor
    • Item icon Time and costs estimates
    • Folder icon If required - Updating costs disclosure
      • Item icon Letter to client updating costs estimate
    • Folder icon General deeds, agreements, execution clauses and statutory declaration
      • Item icon Deeds and Agreements
      • Folder icon Deeds
        • Item icon Deed for general use
        • Item icon Deed of guarantee
        • Item icon Deed of release
        • Item icon Confidentiality deed
        • Item icon General deed of indemnity
        • Item icon Deed of assignment of agreement
        • Item icon Deed of gift
      • Folder icon Agreements
        • Item icon Agreement for general use
        • Item icon Heads of agreement
        • Item icon Non-disclosure agreement - Formal
        • Item icon Non-disclosure agreement - Informal
      • Folder icon Library of clauses for deeds and agreements
        • Item icon Amendment clause
        • Item icon Confidentiality clause for defined information - All parties
        • Item icon Confidentiality clause for defined information - One party
        • Item icon Confidentiality clause for terms of agreement - All parties
        • Item icon Confidentiality clause for terms of agreement - One party
        • Item icon Costs clause
        • Item icon Counterparts clause
        • Item icon Dispute resolution clause
        • Item icon Events beyond control clause
        • Item icon Governing law and jurisdiction clause
        • Item icon Interpretation clause
        • Item icon No assignment clause
        • Item icon Notices clause
        • Item icon Severance clause
        • Item icon Waiver clause
        • Item icon Whole agreement clause
      • Folder icon Execution clauses
        • Item icon Execution clauses - Agreements
        • Item icon Execution clauses - Deeds
      • Folder icon Statutory declaration
        • Item icon Statutory declaration
        • Item icon Standard annexure note for documents
  • Folder icon B. Initial considerations
    • Item icon Initial considerations
      Leases in New Zealand include:

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    • Item icon Lease or licence
      An agreement over property is a lease if it satisfies the criteria of a lease, that is, exclusive possession and a definite term. An agreement that does not meet these criteria is a licence based in contract. A lease gives a proprietary right and protection of the law. A lessee is entitled to enjoy ...

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    • Folder icon If required - Licence
      • Item icon Licence to occupy
      • Item icon Notice of cancellation, revocation, or rescission of licence to occupy
      • Item icon Licence surrender instrument
    • Item icon Short-term lease
      A short-term lease can be created orally or in writing: s 208. A short-term lease includes:

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    • Item icon Validity of contracts for disposition of land
      Several general rules apply to a contract for a disposition of land. Under s 4 of the Property Law Act 2007, a disposition includes a lease. Under these rules:

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    • Item icon Equitable lease
      The concept of equity allows a court to achieve justice despite technical legal rules. Equity is applied by all courts. Consequently, the rule that would invalidate a lease of more than one year’s duration unless in writing is overcome by creating an equitable lease. As established in Walsh v ...

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    • Item icon Implications of personal property securities legislation
      Land dealings cannot be registered on the Personal Property Securities Register. Despite this, the implications of the Personal Property Securities Act 1999 for lessors and lessees and their personal property should be carefully considered. Leases often encompass personal property, such as a ...

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  • Folder icon C. Agreement to lease
    • Item icon Agreement to lease
      A document that records an intention to enter into a lease may be referred to as an:

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    • Item icon Agreement to lease - General
    • Item icon Agreement to lease - Major construction
    • Item icon Heads of agreement - Offer to lease
  • Folder icon D. The lease
    • Item icon Defining the premises and its use
      Registering a lease of land on Landonline requires a lease instrument that is executed by the lessor and the lessee, and contains the prescribed information under the Land Transfer Regulations 2018: s 91 of the Land Transfer Act 2017. Using Land Information New Zealand’s forms is not mandatory ...

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    • Item icon The term, outgoings, and the security deposit
      Term A lease must have a specified or definable start date.

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    • Item icon Lessee’s rights
      Lessees have rights under a lease to:

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    • Item icon Lessor’s rights
      As the lessor usually prepares the lease, they create rights in their favour. These rights are created by requiring lessees to enter into covenants to do or not do certain things and empowering lessors to enforce those covenants. A lessee will normally agree to:

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    • Item icon Repairs
      A lessee’s obligation to keep premises in the same condition as at the beginning of the lease and to deliver them up when the lease expires in that same condition, except for fair wear and tear, means the lessee will need to make repairs. A lease may include a covenant to keep leased premises in ...

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    • Item icon Lessor’s insurance
      The ADLS Deed of Lease specifically requires a lessor to have insurance cover for:

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    • Item icon Lease instrument
    • Item icon Deed of commercial lease - Annexures A and B
    • Item icon Deed of rural lease - Annexures A and B
    • Item icon Implied covenants
      Subpart 3 of Part 4 of the Property Law Act 2007 implies into any lease the covenants contained in Schedule 3. These covenants can be negatived, varied, or extended by express terms of the lease or, for oral short-term leases, by agreement of the parties: s 279.

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    • Folder icon If required - Library of clauses
      • Item icon Covenants protecting mortgagee's interests
      • Item icon First right of refusal
      • Item icon Liquor licence application
      • Item icon Option to purchase
      • Item icon Turnover rent
    • Folder icon If required - Other leases, licences and agreements
      • Item icon Car parking licence agreement
      • Item icon Deed of lease of business
      • Item icon Medical centre licence agreement
      • Item icon Short licence agreement of business and premises
    • Item icon Letter to landlord with draft lease and advice
    • Item icon Enclosure - Advice to parties reviewing a lease
    • Item icon Letter to landlord with leases to sign
    • Item icon Letter to tenant acting for self submitting lease or sublease
    • Item icon Letter to tenants' lawyer submitting lease or sublease
    • Folder icon If required - Mortgagee consent
      • Item icon Mortgagee’s consent
        It is not common practice in New Zealand for lessees to require landlords to obtain mortgagee consent to a lease, or for lessees to have a right to lodge a caveat. However, it is good practice as it ensures that the lessee’s rights are protected should the mortgagee exercise their power to sell the ...

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      • Item icon Letter to mortgagee for consent to lease
      • Item icon Letter to mortgagee for consent to mortgage of lease
      • Item icon Annexure schedule - consent form
    • Item icon Registration of lease
      It is not common practice in New Zealand for leases to be registered. While registering a lease may not be common practice, it is good practice. A long-term lease that is not registered can be enforced, but it does not create an estate or interest in land: s 24 of the Land Transfer Act 2017. ...

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  • Folder icon E. If required - Option to purchase, renewal, variation, and amendment
    • Item icon Option to purchase
      An option to purchase gives a lessee the right to purchase the leased property at any time during their tenancy. The right is not dependent on the lessor looking to sell the property. An option to purchase creates an equitable interest in land. This means a lessee exercising the option can lodge a ...

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    • Item icon Right of first refusal
      A right of first refusal, or right of pre-emption, in favour of a lessee may be included in a lease. This right allows the lessee to buy the leased premises before anyone else. Unlike an option to purchase, a right of first refusal is a purely contractual right that does not give the lessee an ...

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    • Item icon Notice of exercise of option
    • Folder icon If required - Merger of estates
      • Item icon Merger of estates or interests
        A person can apply to Land Information New Zealand to register a merger of an estate or interest into a greater estate or interest. However, the merger can only be registered if the registrar is satisfied a merger at law and in equity has occurred: r 18 of the Land Transfer Regulations 2018. ...

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      • Item icon Application to Note Merger of Lease
    • Item icon Right of renewal
      A right of renewal gives a lessee the option to enter into a new lease with the lessor when the current lease is due to expire. Lessees often prefer to enter into a short-term commercial lease with a right of renewal rather than commit to a long-term lease. This occurs particularly with lessees ...

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    • Item icon Rent review
      Most leases have a rent review clause that provides for rent to be reviewed annually on the anniversary of a lease’s start date. Rent is reviewed by:

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    • Item icon Letter to tenant for CPI rent increase
    • Folder icon If required - Variation of lease
      • Item icon Deed of variation of lease - Deferral of rental payments
      • Item icon Lease variation instrument
    • Folder icon If required - Amendment of lease
      • Item icon Letter to tenant's lawyer submitting amendment
      • Item icon Deed of amendment of lease
  • Folder icon F. If required - Change of ownership, assignment, and sublease
    • Item icon Impact of change of ownership
      As a lease is a contract, the normal rules of privity of contract apply. However, a lease also creates an interest in land. Rights arising from a lease therefore may be enforceable against the subsequent owners of the freehold or leasehold.

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    • Item icon Sublease
      A third party may be introduced into a lease through a sublease of the lessee’s interest. A sublease is used for an arrangement intended to last for less than the term of the headlease. The sublease must terminate at least one day before the headlease ends.

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    • Item icon Deed of commercial sublease - Annexures A and B
    • Item icon Deed of rural sublease - Annexures A and B
    • Folder icon If required - Assignment of lease
      • Item icon Assignment
        An assignment of lease is used when the whole of a lessee’s interest in a property is transferred to a new lessee, known as the assignee. In this process, the original lessee does not intend to reclaim the interest before the lease terminates. The ADLS Deed of Lease requires the lessor’s prior ...

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      • Item icon Deed of assignment of lease
      • Item icon Letter to client enclosing deed of assignment of lease for execution
      • Item icon Letter to assignor's lawyer enclosing deed of assignment of lease for execution
      • Item icon Letter to assignee's lawyer enclosing deed of assignment of lease
      • Item icon Letter to client enclosing completed deed of assignment of lease
      • Item icon Letter to assignor's lawyer enclosing completed deed of assignment of lease
      • Item icon Letter to assignee's lawyer enclosing completed deed of assignment of lease
  • Folder icon G. Disputes, surrender, and cancellation
    • Item icon Disputes, surrender, and cancellation
      Disputes can arise in relation to:

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    • Folder icon If required - Surrendering a lease
      • Item icon Surrendering a lease
        A lease can be surrendered by:

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      • Item icon Deed of surrender of lease
      • Item icon Letter to client enclosing surrender of lease for execution
      • Item icon Letter to client confirming registration of surrender of lease
      • Item icon Letter to other side's lawyer submitting surrender
      • Item icon Lease surrender instrument
    • Folder icon If required - Cancelling a lease
      • Item icon Breach and cancellation of lease
        When a breach is not remedied, the other party has a right to bring the lease to an end. However, they are not obligated to do so. The consequences of a breach depend on what the parties have agreed. The lease may have detailed and specific clauses relating to breaches and their consequences.

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      • Item icon Notice of intention to cancel lease
      • Item icon Notice to cancel lease
      • Item icon Statutory declaration
      • Item icon Clause - Statutory declaration of lawyer - Request to note cancellation of lease
      • Item icon Clause - Statutory declaration of lessor - Lease expired without option exercise
    • Folder icon If required - Right to take possession
      • Item icon Right to take possession
        A lease passes the right to possession of the premises to the lessee. If the lease is cancelled, then that right ends, and the lessor is again entitled to possession. If the lessor can effect re-entry and take possession of the premises without causing a disturbance, then they are entitled to do ...

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      • Item icon Application to note re-entry by lessor
    • Item icon Abandoned goods
      When a lessee vacates premises leaving behind goods, ownership of those goods remains with the lessee. The lessor has no claim to the goods. If the lessee requests access to the premises to remove the goods and access is denied, then the lessor will be liable to an action for detinue or conversion. ...

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  • Folder icon H. Finalising the matter
    • Item icon Letter to client finalising the matter and enclosing documents
    • Item icon Example invoice
    • Item icon Invoice recital - Acting for the lessee
    • Item icon Invoice recital - Acting for the lessor
    • Item icon Closing the file
    • Item icon File closing checklist
  • Item icon Comments and suggestions for By Lawyers

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