Before signing a commercial lease in NZ, ask the right questions to avoid costly mistakes.
Although the Law Association Deed of Lease (formerly, and still widely, known as the ADLS lease) is the standard for NZ commercial leases, variations still exist, and many leases are the result of further terms and amendments. The standard form was also refreshed in late 2024 with the Seventh Edition, so even clauses you have seen before may have changed. A fine-tooth comb approach is always recommended when reviewing any lease.
This guide lays out a practical commercial lease checklist NZ business owners can use before signing a contract, whether you’re leasing in Auckland or anywhere else in the country. We’re also demystifying the legal language of commercial property so you can spot red flags and know exactly what you’re entering into.
1. Lease terms and rights of renewal
Your business could look completely different in two or three years: it could grow, shrink or change direction. It’s important to know a lease will support that transformation, and be fit-for-purpose throughout its duration.
What you should look for:
- Length of the initial lease term: does the initial lease period balance security and flexibility?
- Number and length of renewal options: what conditions, such as notice periods, apply when you renew?
- A rent review clause: when can rental terms be reassessed?
- What happens if you don’t renew: for example, does the tenancy switch to a monthly tenancy?
- Whether there are sensible break points: can either (or both) parties terminate the lease early?
Good to know:
- A right of renewal isn’t an extension of the existing lease. It’s treated as a new lease, so side agreements or variations you negotiated the first time around don’t automatically carry over. Restate anything important when you renew.
- Keep a note of the renewal and final expiry dates and make sure you follow all conditions when exercising your right of renewal.
2. Rent review mechanisms
A rent review is a significant clause to look for when signing any commercial lease in NZ. This helps you understand how rent can increase over the lifetime of the lease.
The mechanisms worth knowing:
- Fixed increase: rent rises by a predetermined amount or percentage at set intervals
- CPI review: rent is adjusted in line with inflation, linked to the Consumers Price Index
- Market review: rent is assessed against comparable market rents at specified points
Your business should model what the premises could cost at each review point, rather than budgeting from the initial figure alone.
Good to know: Rent increases may be open for negotiation to ensure reasonable terms for both parties. The current standard lease also allows for caps and collars, which set upper and lower limits on how far a review can move the rent.
3. Outgoings
Outgoings, sometimes called operating expenses or OPEX, can make a seemingly affordable lease much more expensive.
These are the costs of operating and maintaining the property that are separate from rent.
Typical outgoings in a commercial lease include:
- Council rates
- Building insurance
- Building maintenance and repairs
- Fire safety compliance
- Building management
- Building Warrant of Fitness
- Body corporate fees
Ask for a clear breakdown so you know exactly which costs you’re responsible for.
Good to know: Under most leases, a “wash-up” takes place at the end of each year. This compares what you paid in estimated outgoings with what was actually spent. You may be refunded or invoiced to make up the difference. It’s also worth knowing that the current standard lease takes a list-based approach: only the outgoings itemised in the lease can be passed on to you, and a 24-month time limit applies to recovering them.
4. Make good obligations
Make good obligations are easily overlooked because they occur at the end of a lease.
“Make good” refers to the condition you must leave the property in at the end of the tenancy. In most cases, it’s about leaving the property in the same condition you found it.
Although the scope varies across leases, items a make good clause might cover include:
- Fit outs
- Repairs
- Walls and flooring
- Signage
- Alterations
- Lighting and electrical
- Cleaning
We recommend getting a clear premises condition report, ideally with photographs, before taking possession.
Good to know: “Fair wear and tear” in a lease usually refers to natural deterioration through ordinary use over time. Under the current standard lease, where reinstatement is required and you don’t complete it, the landlord can recover the costs it incurs within six months of the lease ending. Budget for make good well before the final day.
5. Permitted use clauses
Permitted use clauses define the activities tenants can carry out on the property. This is especially important with warehouses and industrial properties, but applies to all commercial premises.
Know the answers to the following questions before signing:
- What exactly does your business do?
- Will that change as the business grows?
- Are there restrictions on customers, noise, hours, storage, manufacturing or other activities?
- Does the property’s zoning support the intended use?
The best clauses allow reasonable room for growth. Too narrow, and they could limit your business’s expansion into new product lines or services.
6. Fitout contributions
The cost of making a premises work for your business can be substantial, but there are no hard-and-fast rules about whether the tenant or the landlord is responsible.
To budget properly, you need to know:
- What work the landlord will complete
- What work you’re responsible for
- Whether the landlord is offering a fitout contribution
- Whether there’s a rent-free period while work is completed
- Who owns fixtures and improvements
- What happens to the fitout when the lease ends
Good to know: A fitout contribution might sound good on the surface, but check whether other, less favourable, lease terms compensate for it. Look at the whole deal when making a decision.
7. Early termination, assignment and subletting
If you need bigger or smaller premises, you want to sell or relocate, or you want another business to take over the premises, is an early exit possible, or are you stuck?
For clarity, here are the relevant commercial lease terms on this topic:
- Early termination: ending the lease before its official end date, either by using a break clause written into the lease or by negotiating a surrender with the landlord
- Assigning: transferring your lease to a new tenant, who takes on your obligations. Be aware that you (and any guarantors) usually remain liable to the landlord until the lease ends, unless the landlord agrees to release you
- Subletting: you lease all or part of the space to a subtenant, but you remain liable to the landlord
Landlords are not obligated to agree to a surrender, and any exit payment is a commercial negotiation. Expect a landlord to factor in the remaining rent, any incentives they provided (such as rent-free periods or fitout contributions), re-letting costs and legal fees.
A break clause works differently: no approval is needed, but you must follow its conditions and notice periods to the letter. Assigning or subletting requires the landlord’s written consent under standard NZ leases. That consent can’t be unreasonably withheld or delayed, and a landlord can’t charge a premium for giving it, only their reasonable costs of processing the request.
To summarise: A commercial lease checklist for NZ businesses
- Check the lease terms and renewal rights
- Understand how and when rent changes are applied
- Confirm what you’ll pay in outgoings
- Understand your make good obligations
- Check the permitted use
- Clarify the fitout arrangements
- Understand your options if the business changes
Before you sign…
By knowing what to look for in a commercial lease, you can feel confident about what you’re signing.
Before you do, get the right people in the room. We recommend having a solicitor review the lease. Our brokers can help you assess the commercial deal and negotiate terms that work for your business.
Start your property search or contact us for help navigating the complexities of commercial leasing.
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This article is general information, not legal advice. Every lease is different, so get advice specific to your situation before signing.
