Commercial lease negotiation saves client $375k

All too often corporate organisations sign leases unrepresented. We, through our subsidiary real estate company, Property Associates Limited, recently helped a client who found a property they wanted to lease and had negotiated terms with the landlord themselves but not concluded the transaction. They sought our help to provide independent advice on whether the terms they had negotiated were reasonable and in line with the market.

Through our assistance we were able to save the client $375,000 from their lease agreement.

There are simple steps to providing large savings that are often overlooked. For example, the latest edition of the Auckland District Law Society Deed of Lease, the most commonly used commercial property lease in New Zealand, allows for a premises condition report to be attached to the lease. Our experience is that this is often overlooked.

A condition report is a photographic record of the property’s general condition at the start of the lease and takes into account any defects and wear and tear. The lease requires the tenant to maintain the premises in the same state as it was at the commencement of the lease. Without a record of the actual condition the landlord could argue at the end of the lease that the tenant will have to reinstate the premises into a full state of repair, regardless of the condition they took it in. This can often amount to around $100,000 - $200,000 for a typical office of 500 - 1,000m2.

Tenants frequently install improvements such as partitioning, racking systems and sometimes have the expectation these add value for the landlord and will be able to leave them at the end of the lease. Again, without the protection of a simple provision in the lease that no reinstatement is required, the landlord can require the improvements to be removed and the premises put back into its original condition at the end of the lease. This is a potentially expensive undertaking and could even require a building consent.

We are able to add the greatest value through being retained by corporate clients early in their property search. We gain a full understanding of their business through a needs assessment process which informs the search criteria and this in turn allows us to jointly develop the premises specification before going to the market.

For companies that are looking to purchase an operational property and have some flexibility on location, we can utilise our unique Mapping technology which enables us to search for suitable properties over a defined area which match the agreed criteria.

These services are becoming increasingly popular and are certainly even more important in the current property market where there is often a shortage of property options. At TPG we are able to provide independent, impartial advice for our corporate clients as we are not a letting agency.

To discuss this service please contact Stuart Bagley, Manager Solutions.