The Effect Of Commercial Lease Structures On Landlord-Tenant Behaviours And Experiences

Commercial rents are of primary importance in determining the investment value of properties and as a consequence the literature relating to property leasing has mainly been directed towards examining the financial characteristics of leases and the effect of various lease covenants on investment returns. However, little attention has been given to understanding the impact of different lease structures on the behaviours and experiences of key market agents in leasing: landlords and tenants. Employing a multi-method research design, that involved large scale questionnaire surveys and key informant interviews, this study examined the experiences and behaviours of landlords and tenants in New Zealand under gross and net lease structures, the two most commonly used lease types in New Zealand. The study identified the extent to which lease structures have significant financial implications for net returns and also non-financial outcomes including: landlord/tenant perceptions of a lease, the operation and maintenance procedures of premises, the landlord-tenant relationship, and ultimately, overall landlord/tenant satisfaction. Despite the landlordsí strong preference for fully recoverable net leases, their leasing strategies and behaviours significantly varied across submarkets in New Zealand, and in particular, with the sector and size of the tenant. Major differences between the perceptions, behaviours and experiences of private and public sector tenants, as well as international and national corporate tenants, were identified. These findings are significant for understanding the dynamics of the New Zealand commercial property markets, and for understanding international leasing environments, since different markets are dominated by different lease regimes. The research highlights the importance of understanding the dynamics of key market agents that actively create lease environments and how these agents interact and behave within these contexts.