Limiting your reinstatement obligations is a key objective for any leaseholder. However, during commercial negotiations, defining and understanding reinstatement obligations can often fall by the wayside when trying to agree final terms, design cost and incentive arrangements. Reinstatement can become a costly issue for tenants if the final obligations are not agreed and documented correctly.
Two key issues we regularly see are:
- The landlord and tenant fixtures and fittings not being recorded
- No premises plan being attached for the deed of lease to show the layout of the premises at the lease commencement
This means there is no benchmark to establish what the reinstatement obligations are.
In both these instances, finding the answers to who owns what, what the premises looked like at lease commencement, and the subsequent layout and fitout changes made can be a very difficult task. This can be further complicated if a building is sold during the term of the lease or if subleases are in place and there is a poorly drafted lease terms which are open to interpretation.
Introducing the Premises Condition Report
In 2012, the Auckland District Law Society updated its 6th Edition Deed of Lease to include provisions for a Premises Condition Report to be populated and included in the final lease documentation. It was a major step forward. The Report gives the landlord and the tenant the ability to record what the premises looked like at the lease commencement, provide clarity of the reinstatement or lease exit obligations and also provide a baseline of what the tenant’s maintenance obligations should be. The Report is a written or photographic record of the premises and, in many cases, can double as a record of the landlord’s fixtures and fittings.
The Report helps both the tenant and landlord be more aware of the reinstatement obligations. In particular, the tenant should be in a better position to understand what happens if they have made improvements or additions to the landlord’s asset throughout the lease term.
It’s vital work that we can help you do right
We embrace the Premises Condition Reports and make sure all our clients understand the Report’s content prior to agreeing and signing the final lease.
Our comprehensive process includes:
- Inspecting the property so we can challenge elements of the Report we don’t agree with
- Seeking clarifications from the landlord on unclear details to be ensure the document is recorded accurately
- Ask for re-definition of things that seem ill-defined
- Looking closely for omissions and errors
- Ensuring clients understand every lease exist obligation
Careful negotiation, documentation and completion of the Premise Condition Report helps minimise disputes between landlords and tenants at lease commencement. While this may not be the most interesting part of the signing up for your premises, a bit of patience at the front end of the process and doing it right will save you money, arguments and wasted time later.