Commercial leases - read the fine print
Repair and maintenance obligations in commercial leases can sometimes leave tenants thousands of dollars out of pocket.
When budgeting to lease premises, some small business tenants are overlooking or underestimating the expense of repair and maintenance that the building will need and are then found liable for significant extra costs.
"You can't be too careful with standard commercial leases," said property lawyer Peter Nolan.
"Typically a landlord doesn't have to fix anything unless it is specified in the lease. Under the standard ADLS Inc lease, expense obligations include redecoration of the premises, but this is not just the interior.
"The landlord can also claim costs of painting the exterior. This is one of many things that will surprise tenants. You can't assume, you must specify."
Failure to include terms in the lease that address who may be liable for what can turn out expensive. Tenants' liability will generally not extend to any renewal of the premises; however, tenants are often unaware that 'repair' may involve the renewal of parts of the premises.
Tenants are not liable for fair wear and tear, but they are liable for consequential damage. For example, if a tile falls off a roof as a result of fair wear and tear, and as a consequence the rain is likely to get in, the tenant - although not responsible for the tile coming off - must repair the roof to prevent further damage to the ceiling or walls.
"The repair and maintenance obligations under a lease are matters of critical importance to both landlord and tenant, so both need to pay close attention to specific provisions of the lease and to seek amendments where appropriate," Nolan said.
Tenants' general obligations are spread throughout standard leases. Some of these obligations go beyond mere repair and maintenance and require the tenant to carry out potentially costly works reinstating the premises when the lease expires.
Leases typically require the tenant to change the premises back to the way it was before they moved in. That means removing any chattels, fixtures and fittings as well as any improvements, alterations or additions made to the premises during the term of the lease.
If the tenant fails to reinstate the premises by the required date the landlord may reinstate the premises and recover the cost of doing so from the tenant.
"This process can be costly if there has been a large amount of work carried out. Any tenant should address potential alterations to the premises before signing a lease. Fit-out may be of benefit to the landlord and parties may be willing to negotiate at the start of the lease, like the landlord purchasing the tenant's fit-out at the expiry of the lease."
To manage costs tenants need to familiarise themselves with the terms of the lease and consider their obligations under the lease before they sign it. Whether amendments to the lease are possible will usually depend on the bargaining strength of the parties involved, so whichever side of the fence you sit, get a legal professional to negotiate on your behalf.
- Hannah Grant is a journalist at the New Zealand Law Society.