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If you are a business in New Zealand, then you are likely to be leasing some sort of premises. Whether this is a warehouse, office or industrial site, leasing allows you to use land without having to buy it. Leases are underpinned by legally enforceable lease agreements. They contain provisions relating to the cost of the lease, length of lease, termination and any other conditions. One of the more important clauses is your renewal options. Some lease agreement may have an automatic right of renewal unless either party says otherwise. However, it is important that you are fully aware of your options when you are renewing your lease. This article will outline the common mistakes that businesses make when renewing their commercial lease and how to avoid them.

Not Looking at Alternatives

The most common mistake that businesses make when renewing their commercial lease starts before they look at a renewal. Businesses should always look to alternatives to see how this may stack up against their current arrangement. It is important to look to the market and check if any other premises are available that are cheaper or better suited to your business. Some of the things that alternative premises may provide:

  • better amenities;
  • a larger space;
  • cheaper rent;
  • a renovation allowance; or
  • better contractual arrangements.

It may seem like the easy option to renew what you already have, but finding a better option may be better for your business in the long run and may help save costs. 

Not Negotiating With Your Landlord

When entering into any agreement, you should always negotiate with your contracting party. In the case of a commercial lease, this becomes your landlord. Landlords are usually happy with the status quo, as long as they are getting their rent on time and you are not causing any problems with the premises. This is why it is always a good idea to try and negotiate better terms out of your contract. You could ask your landlord not to put up the rent as much as they intended or allow you to make improvements on the premises. If you have been a good tenant, landlords are more than likely to agree to any reasonable demand as they do not want to go to the market again. 

When negotiating with your landlord, it may be good to employ separate representation, such as a lawyer. This is because they are more likely to know how to get the best deal for you and are impartial to any emotional conflict that may ensue during negotiations.

Not Re-Reading Your Contract

If businesses have developed a relationship with their landlord they may not think to properly read over their renewal. However, it is always prudent to review your renewed contract as your landlord may have added a clause that you are unaware of. This could lead to an increased rental fee or some other condition that your business cannot afford to sustain. It is also a good idea to get another party to look over the contract, such as a lawyer, to make sure that there are not any hidden surprises. 

Not Utilising the Holdover Period

If your lease has expired, but you have not negotiated a renewal, then you may be in the ‘holding over period’. Your lease may contain a provision where you are able to occupy your premises after the lease has expired as long as you are still paying rent. This allows for negotiations between your landlord and yourself to continue. It also means that you can look at other properties whilst you are in the holdover period.

However, there can be risks involved with staying in the holdover period. This is because your landlord will be able to kick you out at any time with appropriate notice. If this happens, it can be difficult to find a new commercial lease.

Another option is to negotiate a short term lease with your landlord until a more permanent agreement is arranged. This benefits both parties as your landlord has a steady stream of cash, and you can still stay on the premises.

Key Takeaways 

Renewing a commercial lease is a common occurrence for businesses. However, many businesses do not take account of all relevant consideration when going through this process. Many businesses are happy where they are and do not consider finding alternative premises that may be cheaper and overall better for your business. Businesses may also not properly read over their renewal agreements, which can be a critical mistake. This is because landlords may include a clause that was not previously in the lease, and it can be a surprise to some businesses. If you need any legal assistance with commercial leases, contact LegalVision’s property and leasing lawyers on 0800 005 570 or fill out the form on this page.

Frequently Asked Questions

Do I have to renew my contract on the same terms?

No, you can negotiate to get better terms for your business.

Can I go back once I have signed a renewal?

Unless there is a cooling-off period, you cannot go back on a signed contract.

Will all contracts have a holdover period?

No, this is something you should discuss with your landlord to determine if they will allow it.

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