Business Management

The nature and implications of leasing

A lease is a contract by which one party conveys land, property or services to another for a specified time,

usually in return for a periodic payment.

Leases are a corporate feature in most businesses that is legally binding and few people understand the

significance of even signing the ‘Agreement to Lease’ which is as equally binding. The Auckland District law

Society have generated a general lease that is used in most instances to help relieve the leasing market of

difficulties in leasing; this is a free document available online and is now in its 6th edition.

There are many factors that must be taken into consideration before agreements are signed. These, usually

organised by a real estate agent usually define many parts of the lease that have implications over a long

period of time that must be taken into account before signing takes place. This is to ensure that both

parties are aware of their obligations and have the necessary provisions in place to deal with their

contractual obligations. These important components are;

Term

The lease binds the obligations of the lessee to the lessor (and guarantors) of the lease for the said term. It

is important to both agree on an initial term of a lease and then include further rights of renewal at the

option of the lessee

Rental and Rent Review

A lease should generally provide for a review at regular intervals (usually every couple of years). In the

lease there are also usually ratchet clauses which are a provision to ensure the rentals maintain a required

level. Many leases are also set to CPI adjustments (Consumer Price Index) to keep the rental relative to that

of the market. Tenants need to fully comply with these instances and negotiation needs to be made if they

have any doubt with the clauses and with any other clauses of the leases.

Outgoings

Leases nowadays are generally net in type (except most government leases). This is where the lessee is

responsible for the base rent...