When operating a business, you may consider leasing your property out, or leasing one as a tenant. Whatever your situation may be, it is important to know what documents you will be signing, and your rights and obligations under those.This article aims to explain the difference between an agreement to lease and deed to lease, and how a deed of lease can be beneficial to your situation.Agreement to LeaseThe tenant and landlord will first negotiate the lease. The parties may either sign a ‘heads of agreement’, or an Agreement to Lease document to record their agreement. A ‘heads of agreement’ is a legal document that contains ‘agreement to agree’ terms. This document is generally not legally binding, but in some cases can be when both parties intend to create a legal relationship.In most cases, the parties will instead enter into a ‘standard’ Auckland District Law Society Agreement to Lease to record their agreement.An Agreement to Lease outlines the main commercial terms of the lease, such as the rent amount, lease duration, and rent review frequency. The Agreement can include the works required to be carried out by each party, as well as conditions that have to be met prior to the lease commencing.Once an Agreement to Lease has been signed and all conditions have been met, the lease is then legally binding between the parties.While it is important to sign an Agreement to Lease, parties may struggle following through with the lease, as many terms remain uncertain or are omitted from the Agreement. For example, one such risk under an Agreement is that a tenant cannot assign the lease to a third party, meaning that once an Agreement is signed, a tenant is locked into the Agreement for the term of the lease.To ensure the lease is legally sound, parties enter into a Deed of Lease. Deed of LeaseA Deed of Lease reiterates the commercial terms of a Lease as seen in the Agreement to Lease, but goes a step further and details the day-to-day operations of the lease. This includes details about the responsibility for maintenance of the leased premises and procedures for ending the lease, the right to assign, when to access, amongst other things. This is known as the final document when it comes to leasing a property.The most common form of Deed is an Auckland District Law Society Deed of Lease, which is generally prepared by the landlord’s lawyer.Is a Deed of Lease essential?While it may not be essential for a Deed of Lease to be signed, parties are encouraged to take the next step in formalising additional terms and obligations, that are not set out in the Agreement, into a Deed of Lease.Before entering into a Deed of Lease, parties should ensure that the Agreement to Lease is unconditional and binding.When entering into a lease, it is important for parties to note what they want to achieve out of this arrangement. By doing so, the Deed of Lease will be as clear-cut as possible, and leave no room for ambiguity.Signing a Deed confers a number of benefits on the parties. These include:the start and end date of a lease;the ability for a tenant to assign or sublet the lease;dispute resolution processes in the case that a dispute arose between the parties about the lease; andbind the terms setA Deed may need to be signed in order to sell the business or if you wish to borrow money from a bank. It is beneficial to sign a Deed, even if an Agreement has already been signed.SummaryIf you have been considering a lease, you should seek legal advice. Our highly experienced Property/Commercial team at Macalister Mazengarb can help you out.Figuring out what documentation to sign can be daunting. With the right advice, you should be able to achieve a mutually beneficial lease for your circumstances.
