If you’re leasing your business premises, you may have come across terms like “Agreement to Lease” and “Deed of Lease” and wondered what they mean. While both are key documents in New Zealand’s leasing process, they each play unique roles and are often used at different stages. Knowing the difference can help you navigate lease negotiations more confidently and avoid future surprises.
Here’s what you need to know.
1. Purpose and Timing
Agreement to Lease:
This preliminary document outlines the terms and conditions under which both parties agree to enter into a formal lease in the future. Often used when the landlord and tenant have agreed on the broad terms, it allows flexibility while certain conditions are fulfilled – like required building works or council approvals – before the lease can be formally signed. The Agreement to Lease is generally signed before the Deed of Lease and precedes the formal leasing process. Agreements to Lease are often brief, making them favoured by commercial leasing agents. However, since The Law Association’s (previously ADLS) Agreement to Lease can imply the full terms and conditions of the Deed of Lease, it’s often advisable to finalise the Deed of Lease when the property is ready to avoid any complications later.
Deed of Lease:
This formal document creates the actual lease agreement, outlining all legally binding terms between the landlord and tenant. If an Agreement to Lease has been executed first, then the Deed of Lease should be entered into in accordance with Clause 4 of the current ADLS Agreement to Lease. The Deed of Lease can also be executed instead of an Agreement to Lease to save the parties further negotiations in the future.
2. Legal Status
Agreement to Lease:
While legally binding, the Agreement to Lease is more conditional, often requiring specific actions to be completed (e.g. completion of certain works or legal formalities) before a Deed of Lease is signed. Under the ADLS Agreement to Lease, both parties are bound by its terms, covenants and provisions of the Agreement to Lease and the Deed of Lease, even if the formal Deed isn’t executed. This can sometimes lead to overlooked formalities if the Deed of Lease isn’t properly followed through.
Deed of Lease:
This is a definitive, enforceable document that established the lease itself, transferring leasehold interest to the tenant and setting the rights and obligations of both parties. Once signed, it’s fully binding, defining the full and final agreement between the parties.
3. Content and Terms
Agreement to Lease:
This document includes key terms like proposed lease term, rental amount, lease start date, and any conditions that must be satisfied before the lease begins. It also sets guidelines for preparing the Deed of Lease, including timing and any preconditions.
Deed of Lease:
The Deed of Lease is comprehensive, covering terms of the lease, such as rent, lease duration, renewal options, obligations around maintenance, and insurance, rights of assignment, and dispute resolution. It’s designed to govern the landlord-tenant relationship throughout the lease period with full detail.
4. Use in Practice
Agreement to Lease:
Often used when a tenant needs to secure a premises but such premises isn’t immediately available (e.g. if renovations are needed) or when complex terms or conditions are being negotiated. As noted above, its short, flexible format makes it a preferred choice for commercial leasing agents.
Deed of Lease:
This is the standard document formalising a lease agreement after the Agreement to Lease has been signed and any necessary conditions have been fulfilled. It lays out the legal rights of the landlord and tenant regarding the property.
5. Flexibility
Agreement to Lease:
With greater flexibility, it allows for conditions to be added or modified, and in some cases, it permits either party to exit the agreement if conditions aren’t met.
Deed of Lease:
A binding document, its generally more rigid and doesn’t allow for changes unless both parties agree to amend it through a separate agreement.
Understanding the distinctions between an Agreement to Lease and a Deed of Lease can make a big difference in your leasing journey, helping you avoid unnecessary complications and setting up a smooth path for your tenancy.
An Agreement to Lease can be useful for setting up lease terms in advance, but the Deed of Lease is the formal, legally binding document that officially defines the lease. To save time, streamline negotiations, and avoid potential hassle, it is often recommended signing the Deed of Lease directly if the property is ready for tenancy.
Need help? If you have questions about your lease or need support putting together the right contract, our team is here to help. With Source, you get an in-house style legal team for all your contract review and drafting needs – all for a fixed monthly retainer. Contact us today to learn more.
