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Obligation to Reinstate – Commercial Leasing

22 January 2020

Starting a new business can be exciting. You’ve found the perfect premises, and you can’t wait to move in and set it up just the way you want. While your letting agents or commercial landlords are also excited about you moving in, they may not be as excited about pointing out what happens at the end of your commercial tenancy.

What's In Your Commercial Lease?

The Auckland District Law Society have standard commercial lease templates available on their website, which some commercial landlords use. On this lease a Tenant must, either when the lease expires or if they choose not to renew, reinstate the premises to their original condition.

It’s common for tenants or landlords to renovate a premises before the lease begins. You may want special lighting, logos on the wall, office partitioning, shelving for products, or extra power points to handle computers and tills. The Obligation to Reinstate clause in your commercial lease means that you as the Tenant are required to reinstate the premises to their original condition at their your cost. Any damage that is caused during reinstatement also must be repaired by the Tenant.

Basically, after paying to renovate and set the premises up to suit your business, you’re expected to take it all down again when the tenancy ends.

Reinstating Commercial Renovations

Our recommendation, whether you are a Landlord or a Tenant is to discuss and record in the Lease if the Tenant is not required to reinstate the premises at the expiry of the Lease or expiration of a Term. This is often a “win-win” situation where the works add value to the Landlord’s premises and the Tenant is not required to pay further costs to reinstate.
For example, a large space that has new office partitioning may be more desirable with the partitioning left up. After all, it only causes more disruption for tenants and commercial landlords if one tenant has to take down the partitioning only for the next tenant to put office walls up again.

Premises Condition Reports

As commercial Leases are often for long terms it can sometimes be difficult to recall exactly the condition of the premises at the commencement of the Lease. We recommend detailing a premises condition report and attaching it to the Lease. This way there is photographic evidence of the original state of the premises, and there is no confusion about what renovations have been made.

If the Lease is being assigned, we recommend that the Assignee asks about the original state of the premises before taking ownership. It’s possible from the date of commencement you could become liable to reinstate the premises when the Lease expires or is terminated. Basically, you could be held responsible for paying to remove renovations installed by the previous tenant. Ask for a premises condition report first.

Check Your Commercial Lease

Before signing your new lease agreement, bring it to us first. We’ll help you make sense of all the clauses so you fully understand what’s expected throughout your tenancy. We may even be able to negotiate changes to the lease agreement to get you more favourable terms.

If you have any questions about reinstatement or any other continuing obligation under a Lease, contact the Commercial team at Godfreys Law on 03 366 7469.

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