Signing a lease is no small thing. Securing a premises is often a big opportunity, but it’s also an obligation for a long period of time. It’s important to understand how the process works, so your lease doesn’t impact you in ways you don’t intend.

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Heads of Agreement 

If you’re interested in a property, often the real estate agent (who acts for the landlord) will request that you sign a Heads of Agreement.

A Heads of Agreement is a pre-lease document which outlines the basic obligations and terms of the proposed lease including:

• Rental area
• Commencement date
• Rent
• Rent reviews
• Term
• Rights of renewal
• Outgoings
• Guarantees
• Incentives provided by the landlord

It’s essentially a preview to a lease, which helps you to see what the lease agreement will look like. In New Zealand, a Heads of Agreement is usually non-binding, so you can walk away without any repercussions.

What is the form of lease agreement?

The form of lease agreement is the template upon which the lease is based. While a wide range of commercial lease forms are used in New Zealand, the most common is the Auckland District Law Society (ADLS) form of lease. 

The standard ADLS Lease represents a fairly equitable agreement between a landlord and a tenant. However, most landlords will customise the standard ADLS Lease by adding and deleting clauses to skew the ADLS Lease in their favour. A lawyer can help you understand the effect of any modifications to a tenant’s position. 

Larger institutional landlords will often have their own “standard form” of lease which they operate across multiple premises. Typically, these landlords will be reluctant to make wholesale changes to their standard form, so if you want to propose any changes, it’s better to focus on areas that will have material effect (such as reinstatement and make good obligations. A lawyer can advise which are the key points to push back on.

What is an Agreement to Lease?

If you’re satisfied with Heads of Agreement, the next step is signing an Agreement to Lease. 

The Agreement to Lease fleshes out the key terms of the Heads of Agreement and details any conditions which must be satisfied in order for the lease to commence. Typical conditions relate to work that needs to be completed by the landlord or the tenant before the lease takes effect.

The key point to note is that an Agreement to Lease is binding. It’s also likely to include provisions that bind you to a specified form of Deed of Lease (for example, the landlord’s standard office lease or standard industrial lease). 

It’s crucial that you involve a lawyer prior to entering into an Agreement to Lease, because you’re not likely to be able to make changes once you’ve signed it.

What is a Deed of Lease? Do I need to sign it? 

The final step in the process is signing the Deed of Lease. This includes all the terms that will govern the day-to-day operation of the leasing relationship, and is usually prepared by the landlord's lawyer. 

You don’t necessarily need to sign a Deed of Lease, because it’s incorporated through the Agreement to Lease, but it’s definitely worth doing. Having a documented and signed lease is particularly important:

• If you want to borrow money - your bank will require a signed Deed of Lease.
• If you ever want to assign your lease (e.g. if you sold your business).
• Because it will provide details on how the premises should be left at the end of the lease term.
• Because it will incorporate a premises condition report, which outlines the condition of the premises and a final measurement of floor area.
• Because lease versions can change from time to time. Knowing what exact terms apply to your tenancy is particularly helpful when there is a dispute.

It’s important you read and understand how the Deed of Lease operates. 

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‍If you’re considering entering into a lease and would like more information, contact NZ Legal by completing the form below.

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