Commercial real estate guidance

Your fiduciary duty to your client is the highest duty in law – it’s a relationship of trust and good faith.

Your duty of care to a customer (purchaser) is less than the fiduciary obligation you owe to a client (vendor) because you are not contractually bound to the customer as you are with a client. However, you must not act in any way that is likely to cause the customer harm or fail to mention something that the customer should be made aware of.

Rule 6.4 of the Real Estate Agents Act (Professional Conduct and Client Care) Rules 2012 (Code of Conduct) [PDF, 208 KB] provides a benchmark that applies to both clients and customers:

A licensee must not mislead a customer or client, nor provide false information, nor withhold information that should by law or in fairness be provided to a customer or client.

Your client may be a vendor or lessor, and they will be paying the commission on the sale or lease along with any agreed marketing and advertising expenses. In other situations, your client will be a prospective purchaser or lessee, and they would pay your commission fee and any other agreed expenses.

Remember, you can’t represent two clients (vendor/lessor and purchaser/lessee) in the same transaction. This is covered by rule 9.14 of the Code of Conduct:

A licensee must not act in a capacity that would attract more than 1 commission in the same transaction.

Licensees must have a written agreement with a client before they can market or promote any available commercial lease. Licensees working in commercial leasing must do anti-money laundering (AML) due diligence on their client before presenting an offer of lease to the client. This is different to other real estate sectors where AML due diligence must be completed before an agency agreement is signed.

Read more about anti-money laundering regulations(external link)

We recognise that the commercial leasing market operates at scale and pace. Standard agency agreements and processes may not be practical and may be burdensome, particularly for landlords and property managers. This is particularly true where there’s an existing and ongoing relationship with a client for multiple properties. In these scenarios, there may be an agreement between an agency and a client that spans multiple properties across an agreed timeframe that allows licensees to undertake real estate agency work. This agreement should explain how any new leases and properties will be included in the agreement by the client and the agency, being mindful of the requirements in the Code of Conduct. 

Before entering into an agreement with a client, you must:

• agree a current market appraisal or rental rate with the client
• explain how your commission is calculated and paid and include actual amounts of commission payable or refer to how your standard commission is calculated — be clear about whether the figures are inclusive or exclusive of GST.
• recommend that the client seeks legal advice before entering into the agreement.

Licensees who don’t have a written and signed agreement with a client are not entitled to claim commission for any real estate work they have done under section 126 of the Act.

It’s common for smaller commercial and industrial properties to be a unit title rather than a freehold title. This is easily identified on the certificate of title, which will be listed as ’Computer Unit Title Register’ at the top and show either ‘Stratum in Freehold’ or ‘Stratum in Leasehold’ in the ‘Estate’ section.

The main units, which are used for business or residential purposes, are known as principal units. Other units designed for use with the principal unit, such as outbuildings, car parks and exclusive use areas within the grounds, are usually known as accessory (or auxiliary) units. These can’t be sold separately to anyone who isn’t the owner of a principal unit.

When marketing a unit title property for sale, there are provisions within the Unit Titles Act 2010 that require disclosure statements to be provided. These are required at various stages throughout the transaction process and licensees should be familiar with these provisions.

Learn more about the Unit Titles Act 2010

One significant issue with unit title properties is when the agency can release the deposit paid by the purchaser.

Section 123 of the Real Estate Agents Act(external link) requires all licensees who receive any money in respect of a transaction to hold that money for 10 working days from the day they receive it. This applies for all transactions, including the grant, renegotiation or renewal of a commercial lease. It also applies if the sale falls over between the time the deposit is paid, and when the 10 working days is up.

The only exceptions to holding money for this are if:

• there is a court order requiring the agent to pay the money before the 10 working days expires
• there is an authority signed by all the parties to the transaction requiring the agent to pay the money before the 10 working days expires.

If a notice of requisition (where someone lays a claim on the property) or notice of objection to the title is made while you are holding the deposit, you must not pay the deposit to anyone except in accordance with a court order or an authority signed by all the parties to the transaction.

The agreement being unconditional is just one element that must be satisfied before you can release the deposit. The requisition period must also have expired without a claim being made.

If the property is a unit title, the Unit Titles Act disclosure requirements must also have been met.

Releasing the deposit early

If the parties are seeking the early release of a deposit for a transaction in accordance with section 123(2), you should recommend that the parties seek legal advice. They should be aware of the implications of releasing the deposit early if something goes wrong later in the transaction.

A lease is a contract in which the owner of the property (the lessor) permits another person or organisation (the lessee) to use and occupy the property for a period in exchange for payment of a specified sum of money. You’ll need to distinguish between ground leases, which relate to the lease of the land only, and premises leases, which relate to the lease of land and buildings.

It’s best practice to get a copy of the lease before marketing the business so that you can familiarise yourself with the details.

Lease documents are typically prepared by solicitors acting on behalf of their owner clients. When dealing with a property that is subject to a lease, it’s important to read the lease document carefully and seek specialist advice for any part of the lease that you don’t fully understand. Don’t rely on information from the vendor as this may not be fully accurate.

Some large organisations have their own specific lease documents. Others use:

• Property Council of New Zealand lease forms(external link)
• The Law Association lease forms(external link)

There are several versions of each lease, and you need to be able to distinguish between these.

Lease assignments

There are assignments of leases where the original lessee (the assignor) transfers their interest to another party (the assignee), who becomes the lessee (with the approval of the lessor).

The assignor is still responsible to the lessor for any default by the assignee for the duration of the original lease. Subleasing, however, is different because the sublessee engages in a contract with the original (head) lessee rather than the lessor.

It’s important to note that, when a lease is assigned, in most cases, the assignor (or vendor in the case of a business sale) will still have obligations to the landlord (lessor) for the lease even following the assignment to the purchaser. This applies until the end of the lease term.

If the lease is to be assigned, the deed of assignment of the lease will need to be completed within the timeframe specified on the front page of the agreement. You’ll need to explain to both the vendor and purchaser who is responsible for the costs involved in this process.

If you’re aware of any issues or problems relating to the existing lease, you must disclose the issues to the purchaser. You must also discuss whether they require any alterations to the lease to suit their proposed use of the premises.

Marketing commercial and industrial properties are likely to involve a range of documents.

These may include but are not limited to:

• lease documents – there must be one for each tenancy if the property has more than one tenant
• seismic evaluations
• building warrant of fitness (BWOF)
• licences.

In some situations, such as a mortgagee sale or when the client is the receiver or liquidator, it is likely that there will be certain documents and information that parties cannot provide to the agency. 

There are occasions when new information will become available between the dates of contract and settlement.

For example, the vendor may receive notification of a designation being placed on the property for road widening or the installation of electricity or telecommunications equipment or a maintenance inspection may reveal a significant hazard or indicate a need for expensive repairs.

If the property is subject to a body corporate, a change in the rules that would affect the purchaser’s use of the property, perception of its value, significant increase in levies or insurance premiums must be disclosed. Similarly, if during this period there is new information about a current or future tenant that might affect the purchaser’s perception of the quality of the property, this must also be disclosed.

Any information of this nature or information that would otherwise affect the purchaser, must be disclosed immediately to the purchaser.