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Commercial Leases
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Author(s): David Grinlinton, Jane Holland, Ross Mulholland
Published: 14 October, 2003
Pages: 108
A decade has now passed since the commercial property market crash of the late 80s and early 90s. The fall-out from the crash left a legacy of litigation, and increased judicial and academic scrutiny of the law and practice of commercial leasing.
The last New Zealand Law Society seminar on “Commercial Leases” took place in 1993 at a time when much of the litigation arising out of the property crash hadn’t yet run its course. Now a number of important cases have found their way to the Court of Appeal and even the Privy Council. While some of these decisions have brought certainty to areas of ambiguity or controversy, others have had the opposite effect, often raising the issue of whether some legislative intervention may be desirable. However, apart from the recent measures to automate the Land Transfer system, there appears to be little enthusiasm for reform as suggested by, for example, the Property Law and Equity Reform Committee in its Final Report on Legislation Relating to Landlord and Tenant (1986), or the Law Commission in its report, A New Property Law Act (NZLC R 29, June 1994). While legislation may well be desirable, particularly in the areas of guarantors obligations, rent review and commercial tenants’ protection legislation, such reform doesn’t appear to have a high priority despite the huge costs of ongoing litigation to business, the judicial process and the economy.
The commercial leasing environment has also changed considerably since the “shake-out” of a decade ago. Significant new developments have taken place, particularly in Auckland and the main centres, and there is considerable movement of larger commercial tenants into new premises leaving a surplus of older properties. Larger tenants have become more aware of their commercial significance in a thinking market, and are acutely conscious of the deficiencies of many buildings constructed in the 1980s boom. Those tenants are requiring a great deal more involvement in the design and construction of their new premises, tax effective structuring of incentives offered, and more “tenant friendly” base terms. The greater emphasis on achieving the commercial objectives of both the lessee and the lessor in the documents and in the process has come to be called “partnering”.
In order to lease commercial space in older buildings a landlord is required to be more accepting of not only significantly reduced rental levels, but often of gross leasing terms, simple lease documents, and relaxed guarantee terms.
With more relaxed planning controls, and the increasing popularity of inner-city living encouraged by events such as the America’s Cup defence, some of this surplus has been redeveloped for residential use. Long fixed-term high value residential lettings often have significant commercial importance and yet may be subject to tenancy protection legislation designed for traditional private landlord/tenant relations. Conversely, the movement towards the concentration of retail shopping in large malls and shopping centres, and in trade/commercial/retail precincts, often with a single “all-powerful” landlord, raises the issue of retail tenancy protection legislation as has occurred in Australia.
Author(s): David Grinlinton, Jane Holland, Ross Mulholland
Published: 14 October, 2003
Pages: 108
Introduction
A decade has now passed since the commercial property market crash of the late 80s and early 90s. The fall-out from the crash left a legacy of litigation, and increased judicial and academic scrutiny of the law and practice of commercial leasing.
The last New Zealand Law Society seminar on “Commercial Leases” took place in 1993 at a time when much of the litigation arising out of the property crash hadn’t yet run its course. Now a number of important cases have found their way to the Court of Appeal and even the Privy Council. While some of these decisions have brought certainty to areas of ambiguity or controversy, others have had the opposite effect, often raising the issue of whether some legislative intervention may be desirable. However, apart from the recent measures to automate the Land Transfer system, there appears to be little enthusiasm for reform as suggested by, for example, the Property Law and Equity Reform Committee in its Final Report on Legislation Relating to Landlord and Tenant (1986), or the Law Commission in its report, A New Property Law Act (NZLC R 29, June 1994). While legislation may well be desirable, particularly in the areas of guarantors obligations, rent review and commercial tenants’ protection legislation, such reform doesn’t appear to have a high priority despite the huge costs of ongoing litigation to business, the judicial process and the economy.
The commercial leasing environment has also changed considerably since the “shake-out” of a decade ago. Significant new developments have taken place, particularly in Auckland and the main centres, and there is considerable movement of larger commercial tenants into new premises leaving a surplus of older properties. Larger tenants have become more aware of their commercial significance in a thinking market, and are acutely conscious of the deficiencies of many buildings constructed in the 1980s boom. Those tenants are requiring a great deal more involvement in the design and construction of their new premises, tax effective structuring of incentives offered, and more “tenant friendly” base terms. The greater emphasis on achieving the commercial objectives of both the lessee and the lessor in the documents and in the process has come to be called “partnering”.
In order to lease commercial space in older buildings a landlord is required to be more accepting of not only significantly reduced rental levels, but often of gross leasing terms, simple lease documents, and relaxed guarantee terms.
With more relaxed planning controls, and the increasing popularity of inner-city living encouraged by events such as the America’s Cup defence, some of this surplus has been redeveloped for residential use. Long fixed-term high value residential lettings often have significant commercial importance and yet may be subject to tenancy protection legislation designed for traditional private landlord/tenant relations. Conversely, the movement towards the concentration of retail shopping in large malls and shopping centres, and in trade/commercial/retail precincts, often with a single “all-powerful” landlord, raises the issue of retail tenancy protection legislation as has occurred in Australia.
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