Most New Zealand commercial leases are written on the ADLS standard form — the Deed of Lease published by Auckland District Law Society in conjunction with the Property Council. It is a well-drafted, broadly balanced document, and its ubiquity is a genuine advantage: both sides’ lawyers know it, which keeps negotiation focused and costs down.
The catch is that the standard form is a starting point. The commercially decisive terms sit in the schedules and the further terms, and those are entirely negotiable.
Outgoings are where the surprises live
Commercial leases typically require the tenant to pay outgoings in addition to rent. The deed lists the categories, and which ones apply to your lease is a matter of what was agreed.
Points worth attention before signing:
- What is actually included. Rates, insurance, building maintenance, management fees, security and common area costs are all candidates. Management fees in particular vary widely and are often negotiable.
- Capital versus operating. Structural repairs and capital improvements should generally sit with the landlord. Wording that allows capital costs to be recovered as outgoings can be very expensive over a long term.
- The apportionment basis in a multi-tenant building, and whether it is by floor area or something less favourable.
- Whether there is a cap. Uncapped outgoings on a long lease transfer an open-ended risk to the tenant.
For a small tenancy, outgoings can add a substantial percentage to occupancy cost. Ask for the last two years of actual figures before signing, not the estimate.
Rent review mechanisms
The common mechanisms are fixed percentage increases, CPI adjustment, market review, or a combination on a cycle.
The clause to watch is the ratchet. A ratchet provision prevents rent falling below the previous level at a market review, meaning the tenant carries downside risk while the landlord retains upside. It is standard, it is accepted in most markets, and it is negotiable — particularly for a strong tenant taking a long term.
Where reviews are to market, check the dispute mechanism and who appoints the valuer. Where they are CPI-linked, check whether there is a cap and floor.
Renewals and the final expiry date
Rights of renewal give the tenant an option to extend. Two mechanical points cause real problems.
First, renewal is usually exercisable only within a defined window, and missing it can extinguish the right. Diarise it well ahead, not on the date.
Second, understand the difference between the term, the renewal terms and the final expiry date. A business that has invested in fitout needs a horizon long enough to depreciate it, and that horizon is the final expiry date, not the initial term.
Make good, and the cost nobody budgets
The reinstatement obligation at the end of the lease requires the tenant to return the premises to a defined condition, usually removing their fitout and making good any damage.
This is frequently the largest unbudgeted cost in a commercial tenancy, and it arrives at the point the business is also paying for a new fitout elsewhere. Two protections are worth negotiating: a condition report at the start, photographed and agreed, so there is no argument about what was there; and clarity on whether specific fitout items must be removed or may be left.
Assignment and subletting
Most leases prohibit assignment without landlord consent, commonly with consent not to be unreasonably withheld. This matters far more than tenants expect, because a lease is often the constraint on selling the business.
Note that on assignment the outgoing tenant frequently remains liable if the incoming tenant defaults, unless a release is negotiated. Selling your business does not automatically end your lease exposure.
Seismic and access
Seismic ratings have become a standard negotiation point. Who pays for strengthening, what happens if the rating changes during the term, and whether the tenant can terminate if the building is deemed earthquake-prone should all be addressed expressly rather than left to the general damage and destruction provisions.
Practical approach
Get the lease reviewed before signing, not after. The cost of a lawyer reading a commercial lease is small against the total commitment, and the leverage to change terms exists only before signature.
Work out your total occupancy cost — rent plus outgoings plus GST plus expected make good — rather than comparing headline rents between premises. And be clear about which terms actually matter to your business, because negotiating everything achieves less than negotiating the three things that would genuinely hurt.
General information only, not legal advice. Have your specific lease reviewed.
