Leases often include a due diligence period during which you can investigate the premises and exit if you are not satisfied. Use this time wisely.
Key areas to investigate
- Building condition: Are there maintenance issues that could affect your business?
- Seismic rating: Is the building earthquake-prone? What are the remediation plans?
- Resource consents: Is your intended use permitted?
- Services: Are power, water, and telecommunications adequate?
- Leases: Is the rent at market levels? How long are the terms? What rent reviews and renewal rights?
Building condition reports
Unlike buying property, tenants don't usually get building reports. But for a long-term lease, it may be worth it.
Consider a building report when:
- The building is older or appears to have issues
- You are committing to a long lease (5+ years)
- You are investing significantly in fit-out
- The building was affected by Cyclone Gabrielle
A building report can identify issues that might affect your occupancy or become the landlord's excuse to increase outgoings for repairs.
Consents and compliance
Verify that the building and your intended use are properly consented:
The building should have building consent and Code Compliance Certificate for all work. Missing CCCs can create issues if you want to alter the premises.
Check that your intended use is permitted under the district plan. Some activities require resource consent. Getting this wrong can shut down your business.
Commercial buildings with specified systems (sprinklers, lifts, air handling) need annual BWoF. Check it's current and the systems are maintained.
Buildings with low seismic ratings may face restrictions or remediation requirements. This affects your security of tenure and the landlord's obligations.
Insurance considerations
Before signing, verify:
- Can you obtain public liability insurance at reasonable cost?
- Is contents and fit-out insurance available?
- What does the landlord's insurance cover (and not cover)?
- Are there flood, fire, or other risk exclusions?
Post-Cyclone insurance issues
Some Hawke's Bay properties now have insurance challenges following Cyclone Gabrielle. Get insurance quotes before you commit to the lease, not after. An uninsurable premises is not a viable business location.
Structuring your due diligence clause
Your Agreement to Lease should include a due diligence clause allowing you to:
- Obtain building reports and LIM
- Verify consents and compliance
- Confirm insurance availability
- Check zoning permits your intended use
- Walk away if issues are found (within the due diligence period)
Usually due diligence periods are 10-15 working days, but complex premises may need longer.
We can advise on what to investigate for your specific premises. Contact us on 06 835 7394.
What Carlile Dowling does at this stage
- - Structure due diligence conditions in the Agreement to Lease
- - Review LIM report and council property file
- - Verify resource consent status for your intended use
- - Identify compliance issues that need resolution
- - Advise on due diligence findings and whether to proceed