Signing a commercial lease is no small thing. Securing premises is often a significant business opportunity, but it is also a long-term financial obligation. Understanding how the process works — and where the traps are — means you can move confidently without locking yourself into terms that do not suit your business.
The typical commercial leasing timeline
The process from finding a property to having a signed, operational lease generally moves through four stages. Each stage has legal significance, and it is important not to skip steps or sign documents without understanding what you are agreeing to.
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Stage 1
Finding premises and the Heads of Agreement
You identify a property, negotiate informally with the landlord or their agent, and document the proposed key terms in a Heads of Agreement (also called a Letter of Intent or Heads of Terms).
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Stage 2
Agreement to Lease
The Heads of Agreement is formalised into a binding Agreement to Lease. This document locks in the key commercial terms and specifies the form of Deed of Lease that will follow.
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Stage 3
Deed of Lease
The Deed of Lease is prepared (usually by the landlord’s lawyer), negotiated, and signed. This is the full governing document of the tenancy relationship.
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Stage 4
Registration (where applicable)
Leases of three years or more (including renewal rights) should be registered on the property’s Computer Freehold Register at LINZ to protect the tenant’s interest against future dealings with the land.
Stage 1: Finding premises and the Heads of Agreement
Working with a real estate agent
Most commercial properties are listed and negotiated through real estate agents who act for the landlord. This is an important distinction: the agent’s job is to secure the best outcome for the landlord, not for you. That does not mean the process is adversarial, but it does mean you should not rely on the agent’s advice when it comes to understanding your legal obligations.
When you identify a property you are interested in, the agent will typically ask you to sign a Heads of Agreement before the landlord will take you seriously.
What is a Heads of Agreement?
A Heads of Agreement (sometimes called a Letter of Intent or Heads of Terms) is a pre-lease document that records the basic proposed terms of the tenancy. It typically covers:
- The lettable area and floor plan
- Commencement date and initial fit-out period
- Rent and rent-free periods
- Rent review mechanisms (market, CPI, or fixed)
- Lease term and any rights of renewal
- Outgoings — what the tenant will pay beyond rent
- Incentives from the landlord (fit-out contribution, rent-free periods)
- Any required guarantees (personal or bank)
- Permitted use of the premises
In New Zealand, a Heads of Agreement is typically expressed to be non-binding, meaning neither party is legally committed at this stage. However, you should read it carefully because it sets the expectations for the Agreement to Lease that follows — and some Heads of Agreement documents do include binding confidentiality or exclusivity provisions that could restrict your ability to keep negotiating with other properties.
The Heads of Agreement sets the negotiating baseline. Points you do not push back on here are often treated as agreed in the Agreement to Lease that follows.
Stage 2: The Agreement to Lease
What is an Agreement to Lease?
If you are satisfied with the Heads of Agreement, the next step is the Agreement to Lease. This document formalises the key terms and adds detail — in particular, it will specify any conditions that must be satisfied before the lease commences. Typical conditions include:
- Landlord completing agreed fit-out or remediation work
- Tenant obtaining resource consent (if required for the permitted use)
- Building consent for agreed tenant works
- Satisfaction with a building condition report or seismic assessment
The critical point: an Agreement to Lease is binding once signed. It is not a draft or a working document. It will also typically lock you into a specific form of Deed of Lease (for example, the landlord’s standard office lease or a particular edition of the ADLS form). That means you have limited ability to renegotiate the lease terms after signing the Agreement to Lease.
It is crucial to involve a lawyer before signing an Agreement to Lease. This is the stage at which the leverage to negotiate is highest — once you have signed, the landlord has much less incentive to make concessions.
Conditions precedent
Conditions in an Agreement to Lease are sometimes called “conditions precedent” — the lease will not commence until they are satisfied. If a condition is not satisfied by the agreed date, the Agreement to Lease may be cancelled. Make sure conditions are specific, have clear satisfaction dates, and are not so broadly worded that the landlord can argue they have not been met.
Stage 3: The form of lease — ADLS and variations
What form does a commercial lease take in New Zealand?
While a range of commercial lease forms are used in New Zealand, the most common is the Auckland District Law Society (ADLS) form of lease, currently in its Sixth Edition. The ADLS lease was designed to be a reasonably balanced agreement between landlord and tenant — it covers all the standard provisions of a commercial tenancy including rent, outgoings, maintenance, insurance, permitted use, assignment, subletting, and end-of-lease make-good obligations.
However, most landlords customise the standard ADLS form by adding or deleting clauses. Common modifications include:
- Narrowing the tenant’s rights to assign or sublease
- Expanding make-good obligations at lease end
- Shifting more maintenance and capital expenditure obligations onto the tenant
- Limiting rent review to fixed increases rather than market review
- Adding personal guarantee requirements
Larger institutional landlords — such as major property funds or listed property companies — often have their own “standard form” of lease that they use across their entire portfolio. These landlords tend to be reluctant to make wholesale changes to their standard form. If you want to negotiate, focus on the provisions that have the most material financial impact: reinstatement and make-good obligations, outgoings caps, rent review mechanisms, and assignment rights.
What is a Deed of Lease?
The Deed of Lease is the complete, executed document that governs the tenancy relationship from day one. It is usually prepared by the landlord’s lawyer based on the form committed to in the Agreement to Lease.
A Deed of Lease includes:
- All commercial terms confirmed in the Agreement to Lease
- Specific rights and obligations of both parties day-to-day
- A condition report of the premises (with photographs) that records the state of the property at the start of the tenancy
- A final measured floor area
- Any landlord’s works or fit-out specification agreed between the parties
- Details of what condition the premises must be returned in at lease end
Do I need to sign the Deed of Lease?
Technically, you do not need to sign a separate Deed of Lease if the Agreement to Lease already commits you to a specific form — the deed is incorporated by reference. But in practice, you should always sign the Deed of Lease, for several important reasons:
- Your bank will require a signed Deed of Lease if you are borrowing against the business or using the premises as security
- If you ever want to assign the lease (for example, on a sale of the business), the assignee will need a signed deed to review
- A signed deed with the condition report attached gives you clear evidence of the state of the premises at commencement — vital if there is a dispute about make-good at the end
- Lease forms change between editions. Knowing which exact version governs your tenancy is important if a dispute arises
Stage 4: Registration on the title
Should a commercial lease be registered?
Under the Land Transfer Act 2017 and the Property Law Act 2007, a lease of three years or more (including renewal rights) can be registered on the property’s Computer Freehold Register at Land Information New Zealand (LINZ).
Registration gives the tenant what is called “indefeasibility” — your interest in the property is protected against third parties who later acquire an interest in the land (for example, if the landlord mortgages the property or sells it). Without registration, a purchaser of the land or a mortgagee enforcing a mortgage may be able to defeat your tenancy interest.
In practice, registration is standard for longer leases and for situations where the tenant has invested significant capital in fitting out the premises. Your lawyer will advise whether registration is appropriate for your specific lease.
What to watch out for throughout the process
Before signing — key checks for commercial tenants
0/0 completeA note on landlord incentives
In a market where vacancy rates are elevated, many landlords are willing to offer incentives to attract and retain quality tenants. Common incentives include:
- Rent-free periods — typically applied at the start of the lease to cover the fit-out period
- Fit-out contributions — a cash payment or landlord’s works allowance to help offset the cost of making the premises suitable for your business
- Reduced rent for an initial period — often structured as a stepped rent schedule
The longer the lease term you are willing to commit to, the more leverage you generally have to negotiate incentives. It is worth having a frank conversation about incentives early in the process — ideally at the Heads of Agreement stage — rather than leaving it until the Agreement to Lease is being drafted.
This article provides general information about the commercial leasing process under New Zealand law as at November 2022. It is not legal advice and is not a substitute for advice on your specific situation.
Sources
- Property Law Act 2007 (NZ)Governs formal requirements for leases and registration on title.
- Land Transfer Act 2017 (NZ)Covers registration of leases and instruments at Land Information New Zealand (LINZ).
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