The PCNZ leases are designed to be used in different circumstances to the recently updated The Law Association of New Zealand (TLANZ) deed of lease. The PCNZ office lease is geared more towards use in multi tenancy office buildings, and the PCNZ industrial lease has specific provisions (such as the contamination clauses) suitable for an industrial development.
The PCNZ office and industrial leases are more comprehensive forms of lease than the TLANZ lease. Both PCNZ forms of lease are generally also more landlord friendly than the TLANZ form, which is expected given that they are published by an organisation which represents many building owners. The office lease has been updated from time to time over the years, but the industrial lease had not been updated for a very long time.
Previously the PCNZ leases were only available as hard copies. Now the new templates are available in editable word format, which will make them much easier to use for transactions.
The two leases contain many of the same key clauses so in many cases our comments apply to both the office lease and the industrial lease forms.
Here are some key takeaways:
- Rent review ratchet: Whilst the leases now allow for CPI and fixed rent adjustments, the hard ratchet remains for market rent reviews, so rent can never reduce on review. A valuer’s certificate must now accompany any rent review notice which is served by either party and, whilst a rent review is outstanding, the tenant now pays an interim rent at a midpoint between the new rent proposed by each of the landlord and the tenant.
- Operating expenses/outgoings: The office lease no longer allows the landlord to maintain a sinking fund, which (if available) had to then be used for certain types of capital expenditure, such as renovations and replacements of items. Whilst certain expenditure (such as seismic works and structural repairs) is still excluded from the operating expenses, the landlord is now able to recover certain of these costs (such as refurbishment costs) via the operating expenses. The tenant can require audited operating expense accounts but may have to pay the costs of the audit, depending on what the outcome of the audit is.
- Insurance excess: The amount of insurance excess recoverable by the landlord (either via the operating expenses or directly from a tenant) is now capped at a sum to be specified in the lease.
- Seismic provisions: There is provision for the landlord to insert the seismic rating for the building in the leases. This must be based on the results of either an initial or detailed seismic report undertaken by a suitably qualified engineer and supported by a letter to the landlord confirming the seismic rating from the landlord’s engineer. If the landlord has not received an appropriate seismic report or letter from its engineer, then care will need to be taken to adjust the wording of the seismic clause to reflect this. It should also be noted that the lease is clear that the accuracy of the seismic information provided by the landlord and set out in the lease is not warranted by the landlord, so there is no recourse against the landlord should the information prove inaccurate.
- Make good: Near the expiry of a lease the landlord can provide a building surveyor’s report to the tenant, detailing the reinstatement work required at the end of the lease term. Tenants should note that the contents of the report will be deemed to be accepted by the tenant unless the tenant responds (with the tenant’s own report, which must also be prepared by a building surveyor) within a specified time. There is also then a dispute process to be followed if the parties cannot agree the scope of the required reinstatement work.
- Rent abatements: Whilst the leases include the right for the tenant to claim a rent abatement (by a fair proportion) in certain circumstances when the premises are inaccessible (such as when a cordon is in place preventing access), rent will only abate for the period when loss of rent insurance is available to the landlord in respect of the relevant event (if at all). However, it is possible that the insurance proceeds available to the landlord will not be equivalent to the “fair proportion” amount by which the rent is abated, depending on the terms of the insurance policy (i.e. the rent abatement may be greater than the insurance payable to the landlord). The landlord may also terminate the lease if the landlord is required by law to expend what the landlord considers to be an unreasonable amount on works to the building, such as seismic works for instance.
- Sustainability initiatives: There are detailed “sustainability initiatives” and health and safety requirements in the leases.
- ATL provisions: In many circumstances any additional lease related provisions in the prior agreement to lease continue to have effect, as opposed to the lease containing all the parties’ arrangements. This may mean that a proposed assignee of an existing lease will need to review the terms of the original agreement to lease.
Overall, the updated PCNZ lease templates provide a solid foundation for both landlords and tenants in the office and industrial sectors. However, it is important to remember that no single template fits all leasing situations. Careful consideration is always necessary when selecting the appropriate base document and clauses to ensure the lease aligns with your specific intentions.
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.