The Law Association of New Zealand releases Seventh Edition of Deed of Lease
The Law Association of New Zealand Incorporated (formerly the Auckland District Law Society) released the Seventh Edition of the Deed of Lease and Sixth Edition of the Agreement to Lease on 25 November 2024
Introduction
The seventh edition of the Deed of Lease (Seventh Edition) contains significant amendments to reflect the changes in law and practice since the release of the prior edition in 2012. The key changes to be aware of include:
- extensive updates to the First Schedule to modernise rent review arrangements;
- expansion of outgoings recoverable from a Tenant;
- an option to specify an insurance excess that will apply under the Lease;
- the introduction of security options for default, including new bank guarantee and rental bond provisions;
- expansion of a Tenant’s maintenance, reinstatement, and make good obligations; and
- an option to include a seismic risk rating.
Rent Reviews
The Seventh Edition includes comprehensive options for the type of rent review to be undertaken at a rent review date. Prior to the release of this edition the default position was a soft ratchet – that is that the reviewed rent could not be less than the rent at the commencement date of the then current Lease term. This remains the default if no other option is selected, however, the following options are now available:
- Hard ratchet – reviewed rent will not be less than the rent payable immediately prior to the relevant rent review date.
- Commencement ratchet – reviewed rent will not be less than the rent payable at the commencement date of the initial Lease term.
- Other – bespoke options such as cap and collar.
Outgoings
The Seventh Edition includes an expanded list of outgoings that may be charged to a Tenant, to reflect current commercial practices. These include:
- any increases in charges attributable to an increase in consumption of utilities and services from the premises (excluding capital charges);
- service maintenance contract charges for roller and automatic doors – the service maintenance contract charges clause now also clarifies that this excludes charges for inherent defects and renewal or replacement of building services;
- repainting of the exterior of the building and fences;
- maintenance of accessways and minor repairs to yard, and carparking areas (including potholes); and
- reasonable body corporate management expenses.
The Landlord is now required to provide a Tenant with a detailed budget of outgoings for the upcoming year. A Tenant can also require a Landlord to provide supporting evidence for any outgoings charged under the lease.
A Landlord must also now notify Tenants of the amount of the outgoing payable within 24 months of when the outgoing is incurred, or the outgoings will be unrecoverable.
Insurance
There is now an option to specify an insurance excess that will apply under the Lease. If no excess is specified the default is $5,000, an increase from the sum of $2,000 set out in the sixth edition.
If the excess is increased due to an act or omission of the Tenant so that the excess exceeds the sum specified in the First Schedule, the Tenant is obliged to pay that increased amount on any future claim on the policy.
Securities Against Default
The Seventh Edition now includes the option to require a Tenant to provide a bank guarantee and/or a rental bond as security against the Tenant’s default under the Lease, and provisions that will apply if this is a Landlord requirement.
Tenant’s Maintenance, Reinstatement and Make Good Obligations
A Tenant’s maintenance, reinstatement and make good obligations under the Lease have been expanded in the Seventh Edition. If the Landlord requires the Tenant to reinstate the premises at the end of the Lease, and the Tenant fails to do so, any costs incurred by the Landlord within 6 months from the date of termination to reinstate the premises are recoverable from the Tenant.
The Seventh Edition also contains new provisions to enable the Landlord to withhold consent to any alteration or addition requested by the Tenant during the term of the Lease, if the proposed works would prompt a requirement to upgrade the building, unless the Tenant agrees to cover all associated costs.
Seismic Rating
In recent years there has been an increasing focus on seismic risk and how a building will perform in an earthquake. As a result, the Seventh Edition now includes a new option for a Landlord to specify the seismic rating of the building.
There is nothing in the Seventh Edition that requires the Landlord to specify the seismic rating. However, where a Landlord chooses to include this rating, if the Landlord becomes aware of any new information that specifies a “materially different” assessment to the one specified, the Landlord must disclose this to the Tenant.
The seismic clauses expressly state they do not constitute a representation or warranty about the seismic rating of the building and no consequences arises from the building being found to have a different seismic rating. However, we strongly recommend that clients take advice on whether the inclusion of these provisions in a Lease are appropriate in the specific circumstances.
Conclusion
The standard form Seventh Edition Deed of Lease will continue to be updated by the Law Association of New Zealand Incorporated to reflect further industry developments over the upcoming years.
Despite the extensive updates contained in the Seventh Edition, not all of these new provisions will be relevant to every commercial leasing arrangement, and parties to the Lease will need to ensure the standard form is modified based on their specific requirements.
Want to know more?
If you have any questions about how these changes will affect you or your future commercial leasing arrangements please contact our specialist property team.
PDF version available here.