Do I really need to sign a deed of lease?
You have found the perfect premises for your business, and you sign up an agreement to lease drafted by the landlord’s agent. The agreement to lease is unconditional, and you are about to move into the premises when you are asked by the landlord to sign a deed of lease.
What is the difference between an agreement to lease and a deed of lease?
The agreement to lease and the deed of lease are different documents. An agreement to lease sets out the broad commercial terms; for example, the term, the rights of renewal of the lease, the rental, and the rent reviews.
The deed of lease not only incorporates the commercial terms in the agreement to lease but also provides detail about the day-to-day operations of the lease. For example, what are the obligations to maintain the premises, what is required to alter the premises, or what happens at the end the lease.
The standard agreement to lease states that the terms of an Auckland District Law Society deed of lease will apply even if a deed of lease is not signed. It does anticipate, however, that a deed of lease will be drawn up by the landlord’s solicitor and entered into by the parties.
A signed unconditional agreement to lease will bind the parties to a lease so you might ask the question why do I need to sign another document recording the lease?
There are benefits to signing a deed of lease. The agreement to lease may be conditional upon certain matters. For example, it may provide that your lease does not commence until the landlord has completed works on the premises. In that case, the agreement to lease will not record the actual commencement date of the lease.
But, a deed of lease will record the date your lease started, and it will record the final expiry date.
Also, the standard Auckland District Law Society deed of lease form changes over the years. For example, new provisions were added following the Christchurch earthquakes to deal with what should happen to the lease if the building was damaged or inaccessible. When you sign an agreement to lease, you are bound by the terms of a deed of lease; so, it makes sense to know what the actual terms in the lease contains.
Besides, a signed deed of lease provides certainty to the parties that the terms are agreed and the paperwork is in order should you wish to assign the lease in the future.
We recommend that clients take advice on the agreement to lease prior to signing. And, we recommend you follow the good practice to take the further step to sign a deed of lease.
Should you wish to discuss any of the above and how it may affect you, please do not hesitate to contact Gaynor McLean on DDI: (09) 914 3528 or email g............@glaister.co.nz
