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New business digs? (law)

The Wānaka App

06 September 2017, 12:00 AM

New business digs? (law)

For anyone contemplating a business move, I’d love to tell you it’s a cinch: sign a lease, call in the removers, and ta-da – relocation signed, sealed and delivered. If only.  by JANICE HUGHES, DIRECTOR, ASPIRING LAW WANAKA


Leasing commercial premises has always brought complexities and considerations well above residential tenancy. Commercial leasing has changed quite markedly over the years, especially in the aftermath of the Christchurch quakes, with a lot more i’s to dot, t’s to cross and "what if” scenarios to ponder.

Come sign up time for your new business digs, you’ll be presented with a commercial lease. The usual form is a pretty standardised contract made available by the Auckland District Law Society. Generally, the template’s reviewed and updated every year or so, and that is where the first issue can arise.


With all the various versions over the years, be very clear from the outset which one you’re actually signing up for – the clauses in each can vary hugely.


Essentially, the standardised contract is a framework where there is plenty of scope to tailor it more specifically to the parties, by adding more clarity and definition through negotiation. At the hub of the deal are the fundamentals: you’ll be getting "X square metres” at "X price”, plus "outgoings” and "usual terms”. The space and price are relatively cut and dried, but when it comes to "usual terms”, one person’s "usual” can be quite "unusual” to another.


Drill down to what your landlord considers "usual terms” and make sure they are clearly documented. Remember, too, unlike residential agreements, commercial tenants are generally responsible for covering the outgoings – the likes of rates, insurance, and building Warrant of Fitness, for starters. If it’s an established building, your landlord should be able to give you a ballpark figure of your likely share of the building’s annual outgoings; with a new building, though, you’re probably going to have to wing it a bit more in terms of budgeting.


Whose is whose?

Be sure, too, you find out specifically what’s yours and what belongs to the landlord.


I had an interesting case a while back where a high-energy-using tenant upgraded the switchboard, which, after a few years, kept overloading. That tenant then sells their business and leaves, new business purchaser/tenant moves in, strikes problems with the switchboard and assumes the landlord will be stumping up. Not so … the new tenant had unwittingly assumed ownership of the switchboard.


So much has changed on the insurance-scape over the past few years, largely around the risks exposed by the quakes. Generally, the landlord takes care of the building insurance, and the tenant covers the likes of their fit-out and chattels, but it’s vital you’re crystal clear of the parameters and cost around that before signing, so you know what would happen should disaster strike.


When moving into a new building, be super, super careful around compliance issues, too. At first blush, you might think ensuring everything’s tickety-boo before the big move rests squarely with your landlord. Ah, no, if you are putting in your own fit-out that may require consent, and if that involves a change of use in an older building

that might trigger some earthquake strengthening too.


Every new commercial building must have a code compliance certificate signed off before the premises can be occupied or made available to any member of the public. If the code compliance isn’t signed off by move in, the only other option is to get a certificate of public use, which basically confirms the building is safe for occupation.


Compliance conniptions

Believe me, I have seen this one cause major conniptions at the 11th hour ... everyone ready to move in and, what d’ya know, they can’t, as there’s no certificate in place. This is not one you should be running the gauntlet on, either.


Under the Building Act, both the landlord and tenant - yes, that’s right, the tenant, too – face a whopping fine of up to $200,000, plus $20,000 for every day in breach.


It might seem strange also to have to consider what happens at the end of the lease, but a common term requires the tenant to "make good” before moving on. Rather simply, the tenant must remove everything they have put into the place and restore it to the state that the landlord handed it over in. How much does that cost? Quite a lot, could be the reply.


I have seen blunders, blissful ignorance and misunderstandings cost tenants thousands upon thousands of dollars, all of which could have been happily avoided with some good old fashioned due diligence. If you find yourself ready to sign a commercial lease, and you haven’t run it by your lawyer, step away from the dotted

line, and don’t commit until your adviser’s critiqued it.


Feedback, comments and questions are always welcomed – please feel free to e-mail me on [email protected]. T: 03 443 0900 W: www.aspiringlaw.co.nz


Janice Hughes is a director of, and senior legal adviser at, Aspiring Law. Please remember, this information is designed as a general guide, and should not replace specific legal advice on a particular issue.