Page 33 - English-DBINZ brochure-2019

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Commercial and industrial building leases

Every lease in New Zealand is negotiated between the landlord and tenant because there is no single
standard form of commercial lease. There are, however, a number of widely used forms of commercial
leases, such as the Property Council of New Zealand (PCNZ) standard office lease for large commercial
buildings with numerous tenants, the PCNZ standard retail lease for retail developments, and the
somewhat simpler Auckland District Law Society standard deed of lease.

Most leases provide that the tenant is responsible for paying various outgoings (sometimes called
“operating expenses” or “property expenses”) in addition to the rent. In “gross leases” (more common
in certain parts of the country, such as Wellington) the rent payable incorporates the outgoings.
Common outgoings payable by the tenant include local authority rates, insurance premiums and internal
maintenance costs. Some leases, particularly of premises in multi-tenanted buildings or shopping
malls, impose on the tenant a share of all the expenses of ownership, operation and management of the
property.

Most commercial leases are for a period of years, often including rights of renewal. Most leases also
provide a rent review clause which allows the landlord to review the rent at specified intervals. These
leases often include a ratchet clause which allows rent to increase, but not decrease (either at all, or to
below the level of rent that was payable at the commencement date of the lease), on a review.
Leases may permit a tenant to transfer its interest in the lease by way of assignment or sublease. It is
common that the landlord’s consent will be required before such a transfer may take place, although
generally the landlord’s consent may not be unreasonably withheld. When a tenant transfers its interest
in the lease to another party, generally both the original tenant, its guarantors (if any) and the new
tenant remain liable under the lease until its expiry.

Building code and seismic issues

Building in New Zealand is regulated by the Building Act 2004. This Building Act establishes a building
code that every building and all building works in New Zealand must comply with. The Building Act
grants territorial authorities, such as local district and city councils, the power to approve or decline
building consents and apply any conditions that the authority feels necessary to ensure that any building
is safe, sanitary, has adequate fire escape egress and is constructed in a way to promote sustainable
development.

In recent years, following a number of major earthquakes that have affected Canterbury (2010 and 2011)
and Marlborough and Wellington (2013 and 2016), seismic issues have become particularly prominent.
Buildings will be required to meet a minimum seismic standard within the next few decades (if they
do not do so currently). The time periods for mandatory upgrades will depend on the location of the
building and the likelihood of earthquakes in that particular location. Separately from the building
code, seismic issues have become important considerations for landlords and tenants in areas with high
seismic risk. Negotiations may take place over the applicability of leases if there is any damage to the
premises, or if the tenant cannot access its premises on account of a government/local authority cordon
(if there is no damage to the premises). Certain tenants are also requiring minimum seismic standards
for the buildings, particularly blue-chip and/or anchor tenants.