Renewing Lease Agreements in Auckland: A Quick Guide
Commercial Lease Renewal
Sign with Confidence
Having the flexibility to renew your lease is great for business owners. Here is a quick guide to getting the most out of your lease renewal.
What is the Tenants Option to Renew?
One of the key terms in your commercial lease is the right of renewal or renewals.
The Right of Renewal in your lease effectively gives the tenant the right to either vacate the premises, or choose to extend their lease by the number of years specified. If you have a 10 year lease with a 5 year right of renewal, it means that at the end of the 10th year you can choose to stay in the premises for 5 more years under the existing lease terms, or vacate the premises. There are some conditions that the landlord may not grant you the right of renewal;
You are in breach of lease - The right of renewal can be withdrawn by your landlord if you are in breach of your lease for unpaid lease costs or breaches of any of the other terms of your lease.
You do not notify the landlord of your intention to renew the lease in time - You normally need to notify the landlord at least 3 months before the renewal date if you intend to take up your right of renewal.
CPP can help with lease administration services or tenant representation to make sure your lease is appropriate for your business.
CP Pro Tip: Renewal time is a good time to raise any issues you have with your landlord or try to re-negotiate lease terms for the renewal period. Some landlords will even give a short rent holiday in return for your renewal.
Moving premises is expensive. Having options to renew will help future proof your business.
Commercial Lease Renewal Process
Renewing your lease is simple.
Notify your landlord in writing at least three months before your expiry date that you wish to renew your lease as per the terms of your agreement.
Your landlord may want to document this in a “Deed of Renewal”, but your confirmation in writing is generally sufficient.
If you have negotiated any variations to the lease for the renewed term, the renewal and variation should be formalised into a deed.
Renewal Vs Extension of Lease
If you do not have a right of renewal remaining on your lease and you would like to remain at the premises beyond your final expiry date, you can try to negotiate an extension of your existing lease with your landlord. It is important that you approach your landlord well in advance of your expiry date, as any extension needs to be executed before the lease expires, otherwise you will need to enter into a new lease. If your landlord agrees to an extension, this will need to be documented into a Deed of Variation and signed by the landlord, tenant and guarantors, (if applicable).
Benefits to Right of Renewal Clauses
The Right of Renewal can be a huge benefit to tenants, and also to landlords. It is a quick simple way for tenants to extend their leases, while also giving them the option of exiting the premises if it no longer suits their businesses needs.
If you are planning to grow your business, or eventually relocate, a well structured lease with renewal options can give you the freedom to make your move when the time is right. If you are considering merging or selling your business, it is good to have the option of selling with a lease in place, or the purchaser may have their own premises they would like to amalgamate your business into.
There is generally no cost involved to either tenant or landlord in carrying out a right of renewal and it can give tenants the option of renegotiating the terms of their lease. I recommend having at least one and preferably two or three rights of renewal when you enter into a commercial lease.
If you have questions about an upcoming lease renewal or negotiating a new lease, CPP’s Tenant Representation service may be able to help you. Email me today for a free initial consultation.
Regards,
Kirstin
