This is a significant update from the prior edition released in 2012, reflecting changes in the market and leasing practice. Key changes include:
- increased flexibility for rent review mechanisms, including ratchet options and caps and collars;
- a revised outgoings list, together with a detailed process dealing with how outgoings are levied;
- an update to the inaccessibility clause (dealing with rent abatements in circumstances where the tenant is unable to access the premises in an emergency);
- different options in terms of the security provided for the tenant (now including options for a bank guarantee or a rental bond); and
- a new seismic clause.
Further details of these key changes are set out below.
Increased flexibility for rent review mechanisms
- In addition to existing optionality for market and CPI rent reviews, the new edition of the lease introduces the option of fixed rent increases.
- New ratchet and cap and collar options have been provided for market and CPI rent reviews – giving various ratchet options, or allowing parties to specify that annual rent (following a market or CPI rent review) cannot decrease by more than a certain percentage, or increase by more than a certain percentage.
Outgoings
- The list of outgoings which the tenant must contribute towards has been updated. For example, a new definition of “inherent defects” has been added, and the outgoings list has been made clearer that service maintenance contract charges (to the extent that they relate to inherent defects) are excluded.
- New provisions have been added to encourage better landlord accountability regarding the calculation and provision of outgoings information to tenants. These provisions include:
- a new obligation on the landlord to provide any annual outgoings budget to the tenant;
- a new obligation on the landlord to provide accounts and assessments relating to the outgoings (if the tenant so requests) to allow the tenant to verify the quantum and purpose of the outgoings;
- provisions dealing with the reconciliation of outgoings, so that overpayments and underpayments by the tenant are accounted for; and
- a clause which specifies that the landlord loses any ability to recover outgoings charges if the tenant is levied more than 24 months after the outgoing was incurred.
No access in emergency
- The “inaccessibility” provisions have been updated to provide for increased flexibility regarding rent abatements, in circumstances where the tenant is unable to access the premises in an emergency. A default abatement amount of 50 per cent of annual rent has now been specified (previously this was a “fair and reasonable proportion”).
A new regime has been included allowing the parties to reassess the agreed proportion of the rent abatement, where an initially agreed rent abatement proportion is considered by either party to no longer be fair or appropriate over an extended period without access.
Additional options for lease security
- In addition to the previous guarantee provisions, the new edition now contains options for alternative (or additional) tenant security – either a bank guarantee or a rental bond.
Insurance
- The insurance provisions have been updated to include obligations on the tenant to pay for any:
- increased excess resulting from the tenant’s actions; and
- costs of repairing damage or destruction, if they are less than the insurance excess amount and the damage or destruction resulted from an act or omission by the tenant.
Seismic clause
- The new lease contains an option for the parties to specify (in the lease) the seismic strength rating (also known as an “earthquake rating”) for the building.
- Although the seismic clause contains obligations on the landlord to provide the tenant with information substantiating the seismic rating specified in the lease, as well as ongoing disclosure requirements if the landlord receives new information to hand, the lease does not include any explicit warranty or representation from the landlord as to the rating specified in the lease, or any specific consequences which arise from the building being found to have a different seismic strength rating than that specified in the lease.
Conclusion
The latest edition of the deed of lease contains material changes to some of the key lease terms as summarised above. Although many of those changes are simply intended to offer increased flexibility to landlords and tenants, other amendments are more significant. Both landlords and tenants will need to ensure that they turn their minds to those issues carefully, to secure lease terms that best suit their arrangements.
If you have any questions about the matters raised in this article, please get in touch with the contacts listed or your usual Bell Gully adviser.