Leasing Jargon

Lessor

Usually the Landlord who leases the tenancy

Lessee

Usually the Tenant who has a lease on the premises

Sub Lessor

A tenant looking to sub lease their tenancy to another tenant

Sub Lessee

A tenant who is sub leasing space from another tenant

Agreement to Lease (Offer)

This document also referred to as a “Heads of Agreement” is the first document that a tenant would generally sign and usually comprises of 3 or 4 pages outlining the basic offer that the tenant is making to the landlord (via the agent) and would include a floor plan or diagram detailing the tenancy in question.

The Agreement to Lease is a legal document and can be in the form of an ADLS agreement to lease but more commonly is a document produced from a variable template by the real estate agency.

The Agreement to Lease refers to the lease which is the second document to be signed and in most cases will have a clause stating that in the event of any dispute, the agreement to lease is the overriding document.

As soon as both the tenant and landlord have signed this document and any conditional clauses have been satisfied, the Agreement to Lease is stated to be “unconditional”

Lease

This document is usually the ADLS Lease (the fifth edition 2008 being the latest version.) This has 15 pages of precise clauses that generally cover most areas relating to the leasing of a tenancy. The Lease is normally prepared by the Landlord’s solicitor within 21 days of the Agreement to Lease (offer) becoming unconditional. The tenant and landlord negotiate over any legal costs

Gross Lease

A lease where the rental (known as a gross rental) includes a share of the building operating expenses. The only other expense for the tenant in regard to the lease is the normal expenses relating directly to the tenancy such as power, telephone etc.

A gross rental only changes every rent review – normally every 3 years. Most office rentals in the Wellington CBD are gross rentals

Nett Lease

A lease where the rental known as a nett rental refers only to the premises’s rent. On top of that, the tenant has to pay for a pro rata share (based onĀ area) of the building operating expenses. The net rental plus the share of operating expenses equal the total rent payable in addition to direct tenancy expenses such as power, telephone etc. As the building operating expenses can fluctuate, the total rental can change from year to year.

Operating Expenses (Outgoings)

These expenses relate directly to the day to day workings of the building and usually include items such as air conditioning , lift maintenance, common are cleaning, security etc etc Under a net lease, a pro rata share based on area is apportioned to the tenancy rental. This set percentage of the total building expenses budget, relating to the tenancy, is generally noted in the lease. Each year as the expenses fluctuate, the landlord accounts to the tenant for the actual expenses and an invoice is rendered to the tenant for any amount over and above the budgeted operating expenses paid by the tenant. If the building owner has managed to reduce the building operating expenses below the budget for the year, the tenant will receive an appropriate refund.

The outgoings are normally outlined on page 4 of the ADLS lease (Clause 3)

Rent review

Usually occurring every 3 years in the case of a 6 year lease (every 2 years for a 4 year lease), the process for the rent review is outlined in the ADLS lease (page 5- clause 2, 1)

Sub Lease

A document noting the agreement by a tenant to sub lease from an existing tenant, in association with the approval of the Landlord. A Sub Lease can vary the existing terms and conditions including the rent in favour of the new tenant (sub lessee). A sub lease only includes terms and conditions relating to the current term of lease. It does not include any rights of renewal under the lease. Note even though the existing tenant sub leases the tenancy they remain in the legal loop and are still fully responsible per the terms and conditions of the lease, should the new tenant not perform their obligations under the Sub Lease

Assignment

An agreement transferring all the terms and conditions of the existing lease from one tenant to another in association with the approval of the landlord. This would include any rights of renewal and does not usually vary any of the lease terms and conditions. Note even though the existing tenant assigns the tenancy they remain in the legal loop and are still fully responsible per the terms and conditions of the lease, should the new tenant not perform their obligations under the lease assignment.

Note the above definitions are of necessity of a general nature and any further detail or explanation should be sought from your real estate salesperson or/and your lawyer