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Lease vs Tenancy

December 2019

Understanding the differences 

By Sean Lennon. Sean is a lawyer at our Papakura office specialising in Business Law.

 

 

We regularly see clients confused as to lease agreements and tenancy agreements as being the same document. They are similar as both involve a tenant and landlord agreeing to a tenancy in consideration for the tenant paying money (rent) to the landlord. 

Lease

A lease is a contract between a landlord and a tenant for commercial premises. Such a contract is called a deed of lease and will lay out the obligations of both the tenant and the landlord, for example, whom pays for repairs and damage to the property.

 

It is important that the Lease details accurately reflect the agreement between both sides. A lease will often allow a third party to take over the lease (assignment). What other key things are there to look for in a lease?

This will depend on whether you are a tenant or a landlord, as a tenant you would need to ensure the landlord is the legal owner of the building and as a landlord that a tenant is solvent. Often, and because of this, a landlord will require a “guarantee” in a lease, this imposes a big responsibility if you are that person entering into the guarantee and should not be taken lightly.

 

Other obligations include, the term of the Lease, the total rent payments, rent reviews, outgoings (rates, insurance and so on) and rights of renewal for the lease. There is an inherent benefit of including rent review dates, such a review is undertaken by market or CPI review. It is also important to have rights of renewal provided for in a lease as it ensures that the landlord cannot arbitrarily raise the rent or cancel the Lease. Similarly, it also ensures that the tenant must pay rent and outgoings and cannot leave the property before the end of the term without legal repercussions.

 

We always recommend that there should be a Deed of Lease setting out all of the relevant terms. Some choose to only have an Agreement to Lease, which does not specify all of the terms that may be relevant – this option can cause problems if there is a disagreement between landlord and tenant as it is really a preliminary agreement that contains basic terms. 

Tenancy  

A tenancy agreement is used only for tenants of residential properties and is subject to the Residential Tenancies Act 1986 (“Act”). 

 

Where tenancy agreements include the obligations of either party, they are generally not as detailed or stringent as Leases. Some key responsibilities of landlords are maintaining the property in reasonable condition and allowing the tenant quiet enjoyment of the property in exchange for the tenant paying rent as agreed in a residential tenancy agreement.

There are two types of tenancy: periodic tenancy (lasting longer than 90 days and can be terminated by a tenant with three weeks’ notice, or three months for a landlord) and fixed term tenancy (that continues in effect until the agreed date). It is important to stress, that although we can advise you on a residential tenancy agreement, they are barred from appearing for you in a tenancy tribunal hearing.

Recommendation

Whether you are a landlord or a tenant and are considering entering into a new lease or if you are needing advice on your current lease come in and talk to one of our property Law team.