One of the most common tasks a commercial property manager undertakes is reviewing a Deed of Lease when issues arise between tenants and landlords. Most of the time the lease is very clear but, in some cases, it is a matter of interpretation which makes it difficult for the two parties to agree. As experienced property managers, we have handled most issues, so we can advise you on how we settled similar issues in previous cases. It is harder when parties have only ever signed an Agreement to Lease and not signed a Deed of Lease.

The Agreement to Lease (ATL) and the Deed of Lease (DOL) are two different documents. The ATL sets out the broad commercial terms, e.g. the term, the rights of renewal, the rent amount and the rent reviews.

The DOL repeats all the commercial terms, but also goes into more detail about the day-to-day operation of the lease. The DOL covers expectations on looking after the building, what happens if you want to leave the premises, and the tenant arrears process, amongst other things.

We always recommend both landlords and tenants sign a DOL and share the cost of doing so.

There are several benefits to signing a Deed of Lease document:

• You and your property manager can easily refer to for answers if there is ever an issue. A Deed of Lease provides certainty and comfort.
• You are bound by the terms of a Deed of Lease when you sign an Agreement to Lease. It makes sense to know exactly what it contains. 
• Your Agreement to Lease may be conditional upon certain matters. For example, your lease may not start until the landlord has finished building the premises. In this case the Agreement to Lease will only state an estimated commencement date. The Deed of Lease records the completion date of a building and when the lease starts. It is always good to know exactly when your lease started so you know exactly when it will end!
• A bank can require the parties to convert an Agreement to Lease into a Deed of Lease if either party is borrowing money.
• A Deed of Lease is critically important if a tenant ever wishes to assign the lease to someone else as if the right criteria is met the tenancy can be assigned. Clause 6.1 of a standard Agreement to Lease states it cannot be assigned. The aim of this clause is to prevent someone using their bargaining power to secure special lease terms and then assigning the lease to someone who the landlord isn’t prepared to deal with. 

Documentation is needed

The standard Deed of Lease has changed over the years, and likely will again. New provisions were added following the Christchurch earthquakes to outline what to do if to if the building is damaged or inaccessible. This was helpful during the pandemic and again following the recent floods.

We recommend signing a Deed of Lease document, even if you’ve already signed an Agreement to Lease. Commercial tenants and landlords should understand exactly what a Deed of Lease contains before signing any Agreement to Lease. Various market factors impact businesses so we refer to lease documents more frequently. Some tenants are finding it hard to pay the rent, they are questioning the responsibility for maintenance issues, and they are wondering how they can go about assigning their leases. It is easier for all involved if a comprehensive Deed of Lease is in place.

Kind regards

James Bangerter

Southern Area Commercial Manager
apm

Feel free to contact our Commercial Team via the contact form below.