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Deciding where you want to operate your business from is a big decision. There are many options to choose from – working from home, finding a shared workspace, or buying your own commercial premises are a few examples. It can be challenging to decide what kind of location would suit your business best. One option you could consider is leasing property for your business. You pay rent to a landlord, and you occupy those commercial premises for a fixed amount of time, according to the contract you sign. You get your own space, and the flexibility to move from that space once your lease is up. It is crucial to perform your due diligence in the lease negotiation process to make sure that your interests are protected by the documents you sign. One such form is the agreement to lease. This article will:

  • explain what an agreement to lease is and when you need one;
  • provide some broad points that your agreement should cover.

What Is an Agreement to Lease?

An agreement to lease is a preliminary document that you sign when negotiating. It is binding on both tenant and landlord. It sets out the relationship between the two of you and defines the essential terms of the lease itself. You should read through your agreement in its entirety and obtain legal advice if there are any parts of it that you do not understand. Generally, you would sign it before drafting and signing a deed to lease, which is a more comprehensive and detailed document.

If you are using a real estate agent, they will often draw up the agreement based on any previous negotiations the tenant and the landlord have discussed. They may use their own standard copy, or the standard agreement to lease form provided by the Auckland District Law Society (ADLS). Many agreements to lease follow this default form, and there are compulsory requirements in this standard form that you may miss if you are not careful.

Why Do I Need an Agreement to Lease?

This document is important because it protects the interests of both the landlord and the tenant. It does provide some leeway that may be useful before you sign the final deed to lease. An agreement to lease can be a contract for a lease that relies on certain conditions being fulfilled before the lease is finalised. These may include that:

  • the premises renovations completed before the tenant moves in;
  • the premises is built according to the tenant’s specifications;
  • you still need to complete your due diligence in investigating the property;
  • the tenant may need third party permissions before they can move in – such as guarantors or the council; or
  • the former tenant is still occupying the land, and the new tenant wants to secure their interest in the property.

If there are conditions such as these, it can be useful to outline them in your agreement. Then, you can sign a final deed to lease when these conditions have been met. Some leases may only rely on an agreement to lease as their document covering the exact nature of the lease. However, it is useful to have a deed of lease as well, as this is a document that covers the exact day-to-day runnings of the lease, and other commercial relationships may rely on you having a deed to lease.

For example, a bank may require a deed to lease if you are applying for a loan. A deed to lease means that the tenant also has the power to assign or sublet their lease if they wish.

Things You Should Cover in Your Agreement to Lease

Your agreement to lease should outline:

  • each of the parties to the lease;
  • a clear description of the premises (including fixtures, fitting, and chattel owned by the landlord);
  • the term (length) of the lease;
  • the start and end dates of the lease;
  • records of the annual rent;
  • how to calculate rent review;
  • any rights of renewal;
  • insurance;
  • any conditions that the parties need to meet before finalising the lease;
  • how the tenant will use the premises; and
  • any fit (changes to the property such as renovations) that need to be finished;

Key Takeaways

An agreement to lease is a preliminary (but binding) contract that you sign when negotiating a lease. It covers the basic terms of the lease, and you will often use it if certain conditions need to be fulfilled before the lease can be finalised in a deed to lease. It is essential to thoroughly read through and understand your agreement before you sign it, because it is the best way to protect your own interests, whether you are a tenant or a landlord. Obtaining advice early on in the lease negotiation process can prevent misunderstandings later on, and avoid disputes from arising because everyone is on the same page. If you would like more information or help with your agreement to lease, contact LegalVision’s property lawyers on 0800 005 570 or fill out the form on this page.

What is an agreement to lease?

An agreement to lease is a document you sign when negotiating commercial lease terms. It sets out the broad terms of your lease, such as rent and the length of your lease. It may have conditions that need to be met before you can sign a final deed to lease.

What is a deed to lease?

A deed to lease is a comprehensive contract that you sign once you have finalised lease negotiations. You usually sign one once the conditions from an agreement to lease have been fulfilled. It is more comprehensive than a deed to lease and covers the day to day runnings of the lease.

Do I need a deed to lease?

Technically, you can operate and use your lease with just an agreement to lease, if it is well-drafted enough. But it is a good idea to finalise the lease with a deed to lease so that you have a more comprehensive lease document to rely on. Your rights are better covered in a deed to lease.

Is an agreement to lease legally binding?

As soon as you sign it, an agreement to lease is a contract that is legally binding. It is a go-between before you sign a deed to lease, but it is still enforceable. For example, if in the agreement to lease there is a term saying that the landlord has to finish renovations before you can move in, then that is legally binding.

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