A commercial lease is often a decisive factor in the success of buying or selling a business. The terms and conditions of the lease can significantly influence the value of the transaction and even determine whether the deal proceeds.
Early legal review of the lease is essential. Buyers who commit to a purchase before seeking legal advice may later discover unfavourable terms, such as a problematic assignment history, requirements for personal guarantees and large bonds, short lease terms without renewal rights, or lack of allocated parking despite associated costs. These issues can lead to financial and operational challenges that may not be immediately apparent.
Transferring a lease is rarely automatic. Most leases require the landlord’s written consent for assignment, and this consent can come with additional conditions, such as financial assessments or personal guarantees. Delays or complications in obtaining consent can disrupt or derail the sale, so early engagement with the landlord is crucial.
Buyers should carefully examine rent review mechanisms, which may be fixed, linked to the Consumer Price Index, or based on market rent valuations. Market-based reviews can result in unpredictable increases if property values rise. It is also important to understand all tenancy costs, including insurance, council rates, water charges, and shared maintenance, as these can add substantially to the base rent.
Clauses related to maintenance, alterations, or end-of-lease obligations – such as “make good” requirements – can have significant financial implications. Buyers should request the full lease history, check for arrears or compliance issues, and clarify any restrictions on fit-out, signage, or future changes to the premises.
A thorough lease review before committing to a purchase helps avoid costly surprises and ensures the premises will support the buyer’s business objectives. In the first instance speak to Smith and Partners commercial law specialist, Jude Dragh on
P: 09 837 6886 or
E: jude.dragh@smithpartners.co.nz.