The majority of business owners in New Zealand lease the premises they operate their business from. As commercial tenants you need to be aware of your rights and obligations in exercising a right of renewal under an existing lease or when entering into negotiations for a new lease.
Rights of Renewal
If you have a further right or rights of renewal under your lease, most standard form leases require you to give the Landlord at least three calendar months notice of your intention to exercise your right of renewal. At the date you give the notice you need to ensure that you are not in breach of any other terms of your lease.
If you give the required notice then the Landlord is then required to renew the lease for the further term. If you do not give the required notice then you are at risk of losing your right to renew. There is the ability to apply to the Court for relief against cancellation of the lease by the Landlord for failure to give the required notice but this can be an expensive process.
If you do not exercise your rights of renewal and the current term of the lease expires then most leases provide that the term is then on a month-by-month tenancy. The consequence of this is that either party can then cancel the lease by giving twenty working days written notice.
Therefore as a Tenant intending to exercise a right of renewal you need to ensure you give the required notice to avoid any subsequent issues.
Usually, an exercise of your right of renewal will trigger the ability for the Landlord to review the rent. Therefore you also need to be aware of your rights contained in any rent review provisions in the lease. For example, your right to dispute the quantum of any rent review and the allowable time periods in which to do so.
New Leases
If you are a commercial tenant either renegotiating a new lease for your existing premises or negotiating a lease for new premises there are a number of key aspects you need to consider including:
- Term of the lease and any rights of renewal. For example, if you are establishing a new business you may not want to be committed to a long initial lease term. Ideally you would want to negotiate a shorter lease term with further rights of renewal.
- What outgoings you will be required to pay and ascertaining what the current annual outgoings are for the premises.
- The terms of any rent reviews and whether rent reviews are to market rent or linked to the Consumer Price Index.
These are just some of the aspects you need to consider and we strongly suggest that you obtain our advice prior to signing any Agreement to Lease or Lease.
We have extensive experience in all aspects of commercial leases advising both Tenants and Landlords.
If you require any advice or further information on the matters dealt with in this publication please contact the lawyer at Farry and Co. who normally advises you, or alternatively contact:
Simon Milne
03 477 8870 or 09 379 0055
The information contained in this publication is intended as a guide only. It does not constitute legal advice and should not be relied upon as such. Professional advice should be sought before applying any of the information to particular circumstances. While every reasonable care has been taken in the preparation of this publication, Farry and Co. does not accept liability for any errors it may contain.