Purchasing Commercial Property - Lease Considerations

Commercial property often attracts a more sophisticated buyer. But that doesn’t mean that every buyer is equipped with the necessary knowledge to complete their due diligence. In the second installment of a series of articles, Partner Nick Strettell outlines some of the important things to consider in a lease:

1. Term - How long has the current term have left to run? 

2. Rights of Renewal – How many rights to renew the lease for a further term remain?  Is the tenant likely to exercise these rights of renewal?

3. Rent Review – How is the rent to be reviewed and in what time frame? Are these market rent reviews or Consumer Price Index (CPI) rent reviews?   

4. Carparks – Are there a designated amount of carparks for the tenant?  If there are multiple tenants, are these carparks appropriately named and identified?

5. Outgoings – The outgoings payable by the tenant under the lease will need careful consideration.  For example, a tenant will usually pay the rates, insurance and service charges for the property or a fair percentage based on the area of the property they are leasing.  

6. Business Use – Be careful of a particularly wide business use as it allows the tenant some leeway to change the business use.  This may cause issues for you as landlord with other tenants on the property, or under the District Plan.

7. Further Terms of Lease – These set out particular rights and obligations between the tenant and the landlord.  For example, there might be an obligation on a landlord to offer the property for sale to the tenant first if they ever intend to sell the property.    

DISCLAIMER

The above information is of a general nature only. The information contained in this document does in no way constitute legal advice and all readers should contact a law firm for advice relating to your specific circumstances.