Executing a Lease Agreement in Auckland: A Guide

Breeze through the paperwork and get your new business open

Leasing commercial premises for the first time can be daunting. This guide will help you navigate the commercial leasing process and find the right premises for your business.

The Benefits of Leasing Commercial premises

Some businesses can operate effectively from home, or using co-working or shared office spaces. Some businesses prefer to own the premises they operate from. Most successful businesses, however, do reach a point where they need to make the move to leased commercial premises. Some of the benefits of leasing commercial space are:

• Location. You can lease space in an area that has a large client base for your business. This could be in a town centre or on a heavy traffic route.

• Flexibility. If your business expands or contracts you have flexibility to move at the end of your lease.

• Amenity. You could easily operate a fitness supplement business from home - selling products online, but if you lease commercial premises adjacent to a gym you would tap into a larger customer base of gym goers. Complementary surrounding businesses will help your business to grow.

• Work/Life balance. Keeping your living space free of work is good for your mental health and the right space for your business will allow for better focus during your working hours.

Read on for step by step guide to entering into a commercial lease agreement in Auckland.

CP Pro Tip: Negotiating lease terms after you sign the lease is difficult and can be expensive. Make sure the landlord has agreed the terms you want before you sign the lease.

Finding the right premises is only the start of the process!

Leasing Commercial Space - Step by Step

For anyone that has not leased commercial space, executing a lease agreement seems like a long and complicated process. I do recommend taking your time to ensure that you are comfortable with the terms and the premises. A lease is a long and generally costly commitment so it is worth taking time to dot your i’s and cross your t’s. The normal process of entering into a commercial lease is as follows;

1. Plan

   You know your business better than anyone. Before you start looking at premises, take some time to plan what would give your business the best chance of success. Consider;

   • Location

   • Size

   • Budget

   • Amenity of the premises, what do you and your customers need?

2. Analyse

   When you have decided on location, check the following criteria;

   • Catchment, how many customers are in the area, including commuters if you are on a busy traffic route.

   • Competition, what sort of competition is there in the area.

   • Surrounding businesses, do they compliment your business?

3. Inspections

   • View as many appropriate premises in your preferred area and some outside the area for comparison. Take into account visibility, signage, foot traffic, and the environment. For example if you provide relaxing massages you do not want to be next door to a noisy cross fit gym.

   • Ask questions about rent, outgoings, parking, lease terms any body corporate or signage rules.

   • At this point you should understand in general what the lease will cost, how long it will last, and how your business will be accommodated, (for example, what works the landlord will need to complete and what works you will need to do before you can open).

4. Agreeing Lease Terms

   When you have found the right premises for your business, and are happy in general with the proposed terms, the agent should provide you with an “Outline of Commercial Terms (OCT)”. This is a document that is generally about two pages long and specifies the commercial terms relevant to the lease. It will include the rent, estimated outgoings, commencement date, length of the lease and any rights of renewal. It will also include any works the landlord has agreed to carry out, details of any rent holiday and how the lease will be guaranteed.

   This is the point at which you should negotiate any terms you would like amended. You may want a longer or shorter term. You may ask for a second right of renewal if there is only one, or a break clause. You can also negotiate other terms like rent review frequency and method. I recommend you engage a lawyer to review the OCT before signing. Once you and the landlord have signed the OCT, you are committed to proceeding with the lease. The landlords lawyer will use the OCT to draw up the Agreement to Lease.

5. Lease Agreement Documentation

   In Auckland the most common form of lease documentation is the Auckland District Law Society (ADLS) lease, however there are different forms of lease and license that various landlords may use. It is important that you seek legal advice before entering into any lease agreement .

6. Agreement to Lease

   Before the lease can be drawn up, an Agreement to Lease is normally required. This document covers both parties if there are still conditions to be completed before the lease can commence. For example, perhaps the building is not yet completed and ready for occupancy. A lease can not be entered into until all of the conditions are fulfilled. The Agreement to Lease specifies all of the conditions, when they must be completed and all of the other lease terms. You must have this reviewed by a lawyer and I strongly recommend you understand all of the terms before signing. Even if you do not sign the Lease, you will still be bound by the terms of the Agreement to Lease so it is essential that you seek professional advice and understand your obligations before signing.

7. Lease Documentation

   The last step in executing a commercial lease agreement is the Deed of Lease. If you have an Agreement to Lease, the lease should be straight forward. Your Lawyer will still need to check the document and ensure it reflects what is agreed in the Agreement to Lease. The execution of the lease agreement is completed when all parties have signed the lease. An original copy should be provided to the lessee and I recommend that you lodge this with your lawyer and keep an electronic copy for your records.

Your Lawyer will help you understand your obligations under the lease.

As long as you take time to plan, carefully choose the right location for your business, negotiate terms that are reasonable, and get good legal advice, your commercial lease will be an asset to your business.

If you would like help with any aspect of entering into a new lease for your business, email me today. My initial consultation is always free. CPP offers tenant representation services to help you manage and negotiate your commercial lease. I look forward to hearing from you!

Regards,

Kirstin