Are You Being Screwed Over By A Ratchet Clause?

Ratchet Clause

Most commercial tenants have at least one rent review over the term of their lease. Often the rent review will be the first time that a commercial tenant will experience a nasty shock when their rental increases at a rate that they feel is completely unfair. Bewildered tenants complain to their landlord, to be told that their rent review has a ratchet clause, so the rental can only be increased, never reduced. Worse still, if their lease has several rent reviews in it, the ratchet clause ensures the rental will always will always increase, in other words, the ratchet clause is a One Direction only movement.

When will the ratchet clause affect you?

Ratchet clauses are often found where the landlord uses an ‘old style’ in-house lease form. Smart tenants will try to get the landlord to agree to use ADLS lease which contains terms that are fair to tenants as well as landlords. Other options include getting the landlord to agree to modifying the rent review clause

Recently we advised a commercial tenant who was frustrated with its landlord.  Our client had wanted to have a longer-term lease over large office premises.  The landlord required frequent rent reviews, with a ratchet clause impacting the rental at each review. With our advice, our client persuaded the landlord to agree the rentals would reduce if the current market had dropped, provided the rental did not go below the commencement rent. This change has provided our client with confidence that it will be paying a fair market rental and potentially saved them considerable cost. As the old saying goes: “the devil is in the detail”.

Don’t be hurried into signing a premises lease agreement.

For over thirty years Parallel Directions Ltd has advised commercial tenants on leasing matters. The ratchet clause is only one of the terms and conditions that need to be carefully considered before committing to a lease. After all, we all want to avoid being screwed over by the ratchet clause or other traps and pitfalls in commercial leasing.

If you’d like to discuss your ‘Ratchet Clause’ query, please contact us.

Do you know the difference between quantity surveyors, land surveyors and building surveyors?

And why should you care? Most people in New Zealand are aware of quantity surveyors and land surveyors, but there’s a new kid on the block…

Building surveyorsAnd why should you care?

Most people in New Zealand are aware of quantity surveyors and land surveyors, but there’s a new kid on the block… Continue reading “Do you know the difference between quantity surveyors, land surveyors and building surveyors?”

Creating winning property relationships

There are two words that have come to mean a great deal in the late 20th and early 21st century: property and relationship. Perhaps they are words that have meant a great deal for many centuries, but somehow I think today we place enormous importance on relationships and property. Well, after all, they relate to some very primal needs; shelter, and the need to survive as social beings. So why am I talking about this today?

Creating winning property relationshipsThere are two words that have come to mean a great deal in the late 20th and early 21st century: property and relationship.

Perhaps they are words that have meant a great deal for many centuries, but somehow I think today we place enormous importance on relationships and property.

Well, after all, they relate to some very primal needs; shelter, and the need to survive as social beings.

So why am I talking about this today?

Continue reading “Creating winning property relationships”

Commercial lease property in Auckland at a crossroads

Auckland businesses face an interesting time in the coming months as business confidence picks up, major event such as the Rugby World Cup hit town, and commodity prices continue upwards. BNZ economist Tony Alexander says business confidence is the best it’s been for nearly 18 months. Coupling these facts with research data on the commercial rental market, I’m suggesting…

Commercial lease property in Auckland at a crossroadsAuckland businesses face an interesting time in the coming months as business confidence picks up, major event such as the Rugby World Cup hit town, and commodity prices continue upwards.

BNZ economist Tony Alexander says business confidence is the best it’s been for nearly 18 months.

Coupling these facts with research data on the commercial rental market, I’m suggesting the market is about to hit a very interesting crossroad. Continue reading “Commercial lease property in Auckland at a crossroads”

Christchurch earthquake turns city on its head in so many ways

The Christchurch earthquake has the whole country reeling, for people both close to the tragedy and those far away. I think most of us are really simply lost for words to describe the enormity of it. The devastation has hit on so many, many levels. And we all come to terms with the shock in our own ways. For myself, I am lucky not to have anyone close to me deeply affected. In a professional capacity, I am already working with clients in Christchurch as they assess how to go about picking up the pieces. They are…

Christchurch earthquake turns city on its head in so many waysThe Christchurch earthquake has the whole country reeling, for people both close to the tragedy and those far away.

I think most of us are really simply lost for words to describe the enormity of it. The devastation has hit on so many, many levels.

And we all come to terms with the shock in our own ways.

For myself, I am lucky not to have anyone close to me deeply affected.

In a professional capacity, I am already working with clients in Christchurch as they assess how to go about picking up the pieces. They are deeply traumatised and very unsure about what to do next as they stare through rubble, past armoured personnel carriers and cordons at where they used to work.

Continue reading “Christchurch earthquake turns city on its head in so many ways”

Getting the real oil on your commercial property costs

I’ve been reading through some of the latest research on the commercial property market in Auckland and found two key trends. The first is that…

Getting the real oil on your commercial property costsI’ve been reading through some of the latest research on the commercial property market in Auckland and found two key trends.

The first is that the high vacancy levels in and around the Auckland CBD are going to stay that way at least until the end of 2013. Despite the fact that larger corporate organisations could take up 80 percent of the new office space about to come available in new buildings, the current buildings they vacate will add to the existing vacancy levels and keep vacancies high.

The second trend that relates to this is Continue reading “Getting the real oil on your commercial property costs”

Digging deeper than ‘drive by’ property analysis

I’ve been talking for some time now about how much of a tenant’s market it is for leasing property. It’s been keeping us busy working with clients looking to negotiate good deals and take advantage of the over supply of commercial space. And if you are in the right position, it is a very good time to move. But a word of caution…

Digging deeper than "drive-by" property analysisI’ve been talking for some time now about how much of a tenant’s market it is for leasing property. It’s been keeping us busy working with clients looking to negotiate good deals and take advantage of the over supply of commercial space. And if you are in the right position, it is a very good time to move.

But a word of caution…

Continue reading “Digging deeper than ‘drive by’ property analysis”

Aussies join Kiwi struggle in property market

Over the past few years I’ve written a number of times about the Australian influence on the New Zealand property market. First it was, “The Aussies are coming”. Then it was, “The Aussies are here”. And the most recent was, “The Aussies are here and they are us”. And today, with the oversupply of commercial rental office space and residential high rise space, they are struggling for good returns the same as everyone else. Let me give you a snapshot…

Aussies join Kiwi struggle in property marketOver the past few years I’ve written a number of times about the Australian influence on the New Zealand property market. First it was, “The Aussies are coming”. Then it was, “The Aussies are here”. And most recently, “The Aussies are here and they are us”.

And today, with the oversupply of commercial rental office space and residential high rise space, they are struggling for good returns the same as everyone else.

Let me give you a snapshot…   Continue reading “Aussies join Kiwi struggle in property market”

Beyond the feudal mind – new ways of thinking about property leases

The great majority of us still have some pretty old fashioned ways of thinking about property. Just the very words landlord and tenant come from a bygone era when we stop to think about it. It was a time of feudal land ownership when there really were lords with peasant tenants who were completely subservient to them. Language is a powerful thing, and using these words today always implies a power structure. In the subconscious mind…

Beyond the feudal mind - new ways of thinking about property leasesThe great majority of us still have some pretty old fashioned ways of thinking about property.

Just the very words landlord and tenant come from a bygone era when we stop to think about it. It was a time of feudal land ownership when there really were lords with peasant tenants who were completely subservient to them.

Language is a powerful thing, and using these words today always implies a power structure. In the subconscious mind Continue reading “Beyond the feudal mind – new ways of thinking about property leases”

Truth, justice and the tenant’s way!

I was browsing through some blogs and online articles about commercial property leasing in the United States and it dawned on me (not for the first time!) how limited our systems in New Zealand are for tenant representation. In the USA, Australia and other countries it is very much the norm that both landlords and tenants alike have their interests independently represented…

Many commercial real estate lease arrangements are heavily weighted in favour of the landlordI was browsing through some blogs and online articles about commercial property leasing in the United States and it dawned on me (not for the first time!) how limited our systems in New Zealand are for tenant representation.

In the USA, Australia and other countries it is very much the norm that both landlords and tenants alike have their interests independently represented. Continue reading “Truth, justice and the tenant’s way!”