By On Your Terms co-founder Natalie Fennell
June 2024

 

You’ve finally found the perfect commercial premises for your business, or maybe you’ve just had the thumbs up from the ideal tenant. What comes next? Do you need an agreement to lease, a deed of lease, or both? Whether you’re a landlord or a tenant, understanding the differences between these documents is essential for a smooth leasing process.  

See our customisable Agreement to Lease for a straightforward and fair agreement to lease, with limited legalese and options to suit both landlords and tenants.

Also see our blogs Help! How can I get out of my business lease early? and Sublease or Property Licence? The options for your business space.

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When do I need an Agreement to Lease?

You need an agreement to lease when specific conditions or works must be completed by the landlord or tenant before the tenant moves in (for example, completing a fit out of an office space). If there are no such conditions or works, you can proceed directly to a deed of lease.

 

What is an Agreement to Lease?

 An agreement to lease is typically the first document signed in a commercial leasing arrangement. It outlines the basic commercial terms of the lease, such as the lease term (length), rent, rent reviews, and any rights of renewal. It also specifies any conditions or works that must be completed before the lease can start and a deed of lease can be signed.

 All negotiations, including the key terms of the deed of lease, should be finalised and documented in the agreement to lease before signing. If you intend to use a standard form lease – such as the Auckland District Law Society (ADLS) deed of lease, you should reference that document being the form of your deed of lease.

 If certain matters can't be negotiated upfront, include them as conditions in the agreement to lease. For example, you might need to obtain a resource or building consent before finalising the lease terms.

 It can be time-consuming and expensive for both the landlord and the tenant if negotiations are not completed and documented before the agreement to lease is signed (and left to discuss for the deed of lease instead).  A fully negotiated and documented agreement to lease will start your commercial leasing relationship on the right foot and reduce misunderstandings.

 

When do I need a deed of lease?

A deed of lease is the final, more detailed document in a commercial leasing arrangement. It builds on the basic commercial terms outlined in the agreement to lease and provides a detailed framework for the day-to-day operation of the lease. It covers important aspects such as insurance, maintenance responsibilities, and procedures for assigning or subletting the premises.

The ADLS Deed of Lease is commonly used as the standard form of lease. While that document is reasonably fair between the landlord and tenant, it needs to be tailored to fit the specific arrangement between them.

Typically, the landlord’s lawyer prepares the deed of lease (at the tenant’s cost), but this is negotiable.   

 

Why do I need a deed of lease if I already signed an agreement to lease?

Usually, a signed agreement to lease will bind both parties to a lease once any conditions are satisfied, by stating that if a deed of lease does not get signed, the parties are bound by the provisions in the nominated form of deed of lease regardless.  So, why do you need a deed of lease as well?

  • Clarity and assurance: A deed of lease removes uncertainty by outlining the full terms of the lease in more detail. This provides assurance and comfort to both parties.
  • Specific dates: Knowing your lease's exact start and end dates is crucial. While an agreement to lease might only provide an estimated commencement date, a deed of lease specifies it, which also clarifies other relevant dates like expiry, renewal rights, and rent reviews.
  • Assignment flexibility: Agreements to lease often cannot be assigned by the tenant to another business. In contrast, a deed of lease typically includes provisions for assignment by the tenant (usually subject to the landlord’s consent), offering more flexibility.
  • Bank requirements: Banks often require a signed deed of lease for financing. Having one in place from the outset can prevent issues later.
  • Complete records: Maintaining complete records, including a signed deed of lease, is beneficial for future transactions, such as selling the premises (if you are the landlord) or selling your business (if you are the tenant).

 

Key points

The leasing process can be complex, but signing the right document can save you time and money. If conditions or works need to be completed before the tenant moves in, start with an agreement to lease. If everything is ready, proceed with a deed of lease.

On Your Terms makes business legals easy for Kiwi SMEs. We help businesses gain peace of mind through our simple online process for purchasing customised, affordable legal documents and tools. By combining human legal expertise with the speed and convenience of technology we offer a new way to legal, including free information, legal resources and connections with NZ lawyers.

 

 

Natalie Fennell

Co-Founder / On Your Terms

Natalie Fennell is a Co-founder of On Your Terms and has been a business lawyer in New Zealand for over 20 years. Learn more about us here