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​​Key lease events

Being aware of key dates and events through the life of a lease is key to effectively managing your property portfolio.

Rent reviews

This section applies to leases that do not have a pre-agreed fixed rate rental review mechanism in place (eg CPI adjustment or stipulated percentage increase). Where such a mechanism is in place, it must be adhered to as set out in the lease.

Before agreeing to any rental variation proposed by the landlord (whether it be an increase or decrease in the annual rental), agencies must obtain an independent rental market valuation from a registered valuer. The valuation report should be compliant with the New Zealand Institute of Valuers Valuation Standards and include the following:

  • Market rental
  • Evidence of comparable rents and analysis and reconciliation of the evidence to the market rent for the premises (and car parks if any)
  • Copies of any specialist technical advice (such as engineering reports) referred to during the valuation process in relation to the premises and the building (including building services)
  • What improvements are included or excluded in the determination of the market rental.

Agencies should contact the Government Property Group (GPG) if they have any queries regarding rental valuations as GPG may be able to provide information from other recent valuations undertaken by agencies in the same or a similar type of space in the same area.

If the evidence indicates a falling market, a landlord may decide not to instigate a rental review to avoid a decrease in the annual rental in cases where there is no ratchet clause and the provisions of the lease allow the landlord to do so. In such situations, agencies should obtain a valuation report and if a decrease in the annual rental is noted, agencies should instigate the rental review.

Where existing leases have a ratchet clause, it is important to understand whether it is a hard or soft ratchet clause. A soft ratchet clause ensures the rental figure will never drop to less than the original sum agreed between the landlord and the tenant. A hard ratchet clause ensures the rental figure will never drop to less than the last rental figure agreed at the previous rental review.

Agencies should ensure any clauses subject to ‘time being of the essence’ are fully understood and adhered to.

Lease renewals

Agencies must obtain prior written approval from GPG to renew an existing lease. Details of the process you need to follow and the approval request template are available for agencies to use as a guide.

It is important to fully understand renewal provisions within a lease to ensure that favourable options available to agencies are not missed.

Lease renewals are not generally activated automatically and require the agency to provide the landlord with written notice as to its intention to renew the lease within a specified timeframe (e.g. written notice of the intention to renew, or not, may require three months or potentially 12 months prior written notice).

Agency staff should also consider that at lease renewal an opportunity exists to approach the landlord to amend existing lease provisions, raise any issues relating to service or maintenance and seek investment such as new carpet. Although lease provisions can be varied at any time during the term of a lease if the landlord is in agreement, approaching the landlord at lease renewal time may provide the agency with additional leverage. E.g. an agency may wish to amend or include a more stringent provision in regards to seismic issues relating to the building and may choose not to renew the lease if the landlord does not agree to the variations being proposed.

It is advisable that these types of discussions are instigated as early as possible to ensure agencies have leverage.

Lease expiry

It is important for agency staff to be aware of when their leases expire and be familiar with the provisions relating to negotiating a new lease with the landlord if the agency wishes to remain in the premises beyond the term of the lease. It is equally important to understand the agency’s obligations at expiry if it has chosen to exit the premises; such as notifying the landlord of the agency’s intention to not remain in the premises upon expiry, and maintenance and reinstatement obligations (eg organising for the carpets to be professionally cleaned, painting the walls and reinstating the office space).

The standard process for make good would require a review of the lease to clarify and confirm the agency’s obligations. It is also recommended that agencies obtain an estimate from a quantity surveyor or a quote from a contractor so that agencies are aware of the costs involved in reinstating the premises. Any estimate or quote will need to include all make good costs that arise when fixtures, fittings and plant and equipment are removed from the premises.

The standard government deed of lease templates do not require agencies to reinstate the premises at the end of a lease term or at an earlier surrender or partial surrender of the lease.

Maintenance obligations of the landlord and the agency as defined within lease agreements

Agencies should have a clear understanding of what is required of both the landlord and the agency in relation to maintenance obligations throughout the term of the lease.

It is easy for the responsibilities to become blurred over time. Creating a schedule specifically outlining the pertinent maintenance obligations within a lease, who is responsible for each obligation and when each obligation needs to be undertaken will ensure there is no ambiguity throughout the term of the lease. Refer to the facilities maintenance obligations template which can be used by agencies as a starting point when creating a schedule.

Additions and alterations

Prior to making any additions or alterations to any leased premises, agencies should check the applicable provisions within the relevant lease. It is common for agencies to require prior written approval from the landlord before any additions or alterations can be made. In some instances local authority consent may also be required.