Lease Side Letters: Legal Mistakes New Zealand Businesses Should Avoid

A lease side letter can look harmless. It is often a short email, a one page letter, or a practical promise made while the main lease is being negotiated. But for New Zealand businesses, this is exactly where expensive problems start. A tenant may assume the side letter overrides the lease when it does not. A landlord may offer rent relief informally, then later argue it was temporary or conditional. Founders also get caught signing a side letter without checking whether it changes personal guarantees, fitout rights, assignment rules, or rent review timing.

Before you sign a lease, or agree to a change after moving in, you need to know what the side letter actually does. The answer depends on how it is drafted, whether it fits with the lease, and whether the parties clearly intended it to be binding. This guide explains what a lease side letter means in practice, the legal issues to check before you sign, and the common mistakes New Zealand businesses should avoid.

Overview

A lease side letter is a separate document that sits alongside a commercial lease and records a specific agreement between landlord and tenant. It can be useful, but only if it clearly states what changes, how long those changes last, and what happens if the lease says something different.

• Whether the side letter is intended to be legally binding
• Exactly which lease clauses it changes, supplements, or leaves untouched
• Whether any benefit is temporary, conditional, personal to the current tenant, or revocable
• How it affects rent, outgoings, incentives, fitout works, guarantees, assignment, renewal, and default rights
• What happens if the side letter conflicts with the main lease or later variations
• Whether all parties who need to sign, including guarantors or related entities, have actually signed

What Lease Side Letter Means For New Zealand Businesses

A lease side letter usually records a specific concession or practical arrangement that the parties do not place directly into the body of the lease. It may be legally enforceable, but only if the wording, signatures, and overall context show a clear agreement.

In a commercial leasing context, side letters are commonly used when parties want flexibility. A landlord might agree to rent relief for the first six months, permit a staged fitout period, relax trading hour requirements, or confirm that a tenant can install certain signage. A tenant might agree to complete works by a certain date, provide extra reporting, or accept a temporary arrangement while the formal lease variation is being prepared.

The document can be short, but the effect can be significant. A side letter may alter how the lease works in practice even if the main lease remains unchanged. That is why businesses should not treat it as a casual add-on.

Why businesses use side letters

The main appeal is speed. When a deal is close and the parties want to move ahead, a side letter can capture a specific point without rewriting the full lease.

Common examples include:

• short term rent abatements or rent deferrals
• fitout or access arrangements before the lease commencement date
• exclusive use promises
• landlord contributions to works or relocation costs
• temporary changes to outgoings or marketing levies
• special conditions around assignment, subleasing, or surrender
• agreements about make good obligations at the end of the term

These issues matter because they affect cash flow, timing, and operational risk. If you are signing a retail, office, warehouse, or hospitality lease, one unclear promise can change the economics of the whole deal.

How a side letter interacts with the main lease

The main legal question is not whether the document is called a side letter. The real question is what legal effect the parties intended it to have.

Some side letters operate as a binding variation to the lease. Others are intended to be separate contractual promises. Some are little more than comfort letters and are drafted so loosely that enforcing them later becomes difficult. A court will usually look at the wording, the surrounding negotiations, whether there was consideration or a deed, and whether the terms are certain enough to enforce.

This is where founders often get caught. A tenant may read a concession in a side letter as permanent, but the landlord may have intended it to expire at the first rent review, at assignment, or if the tenant defaults. If the wording is vague, the parties can spend a lot of time arguing over what was actually agreed.

Why naming the document is not enough

A document headed “side letter” is not automatically weaker than the lease, and it is not automatically stronger either. Its effect comes from the terms and the legal structure.

Before you sign, check whether the document says:

• it varies the lease
• it prevails if there is inconsistency
• it is personal to the named tenant only
• it ends on assignment, renewal, default, or expiry of a concession period
• it is confidential
• it does not create a precedent for other tenants

Those points can make a major difference later, especially if the business is sold, restructured, or relocated.

Legal Issues To Check Before You Sign

Before you sign a contract, the key job is to make the side letter fit cleanly with the lease and your commercial deal. If the side letter is unclear on timing, conditions, or priority, the business may lose the benefit it thought it had negotiated.

1. Is the side letter actually binding?

Start with the basics. Does the wording show a final agreement, or does it read like a non binding discussion point? Phrases that sound informal can create uncertainty.

Check:

• whether all key terms are stated clearly
• whether the parties are correctly named
• whether it is signed by authorised signatories
• whether it is expressed as a deed if needed
• whether there is clear consideration if it is a simple agreement rather than a deed

If negotiations are still continuing on a major point, signing a vague side letter may create false confidence rather than legal certainty.

2. Which lease clause does it change?

A good side letter should identify the lease clauses it affects. If it says “rent will be reduced” but does not say whether outgoings, GST treatment, rent review mechanics, or default interest also change, disputes can follow quickly.

The safest contract drafting usually does one of two things:

• it states the exact lease clauses being varied and sets out replacement wording
• it states the special arrangement in detail and says the lease continues unchanged except to that extent

Without that clarity, both sides may rely on different parts of the lease to support different outcomes.

3. Is the benefit temporary or conditional?

Many lease side letters are meant to give a limited concession, not a permanent rewrite of the lease. The business should know exactly when the arrangement starts, when it ends, and what can bring it to an early end.

Look closely at conditions such as:

• paying rent on time
• completing fitout works by a deadline
• remaining the original named tenant
• not assigning or subletting without landlord consent
• not being in breach of the lease

If the concession ends automatically on default, even a minor breach could have a large financial impact.

4. Does it affect guarantees or security?

This point is often missed. A side letter dealing with rent relief or a change in trading terms can still affect the risk position of guarantors or related entities. If a personal guarantee, bank guarantee, or security deposit is tied to lease obligations, any variation should be checked carefully.

A side letter may need to confirm:

• whether guarantors consent to the variation
• whether the security amount changes
• whether the concession affects when the landlord can call on security
• whether deferred rent becomes immediately payable on default

If those points are left out, the parties may argue later about whether the guarantee still applies as intended.

5. What happens on assignment, renewal, or sale of the business?

A concession that works for the original tenant may not pass to a buyer of the business. Some side letters are expressly personal to the current tenant and end if the lease is assigned.

That matters if you plan to:

• sell the business
• restructure into another entity
• bring in investors and shift the leaseholding entity
• exercise a renewal right later

Before you spend money on setup, fitout, or acquisition costs, make sure the side letter says whether the arrangement survives those events.

6. Is there a conflict clause?

If the side letter and lease say different things, the documents should tell you which one prevails. Without an inconsistency clause, the parties can end up in a technical argument over interpretation.

A clear clause should address:

• whether the side letter overrides the lease on specific issues only
• whether the override applies for a limited period
• whether later lease variations supersede the side letter
• what happens if more than one side letter exists

This is especially important where a tenancy has evolved through email negotiations, COVID era concessions, rent adjustment letters, and later amendments.

7. Are confidentiality and disclosure handled properly?

Landlords often want side letters kept confidential, especially where one tenant has negotiated a special incentive. That can be commercially sensible, but it should not stop the tenant from disclosing the document to its lawyers, accountants, funders, or potential buyers where reasonably necessary.

If the clause is too broad, it can create practical problems during due diligence or finance discussions.

Common Mistakes With Lease Side Letter

The biggest mistake is treating a side letter as a casual promise instead of part of the legal lease package. Small drafting gaps can turn into large disputes once rent is due, the business changes hands, or the landlord relationship becomes strained.

Relying on emails instead of a signed document

Plenty of leasing deals drift into email shorthand. A property manager may say “agreed” to a rent concession, or a landlord may approve signage in principle. That does not always give the tenant a clear, enforceable right.

Where the point matters commercially, get it into a properly signed document. Verbal assurances and scattered emails are hard to interpret once memories differ.

Leaving key commercial details vague

Words like “temporary relief”, “reasonable contribution”, or “fitout period to be agreed” often store up trouble. If the financial value or timing matters, the document should be specific.

For example, a side letter dealing with rent relief should clearly set out:

• the amount of rent reduced, deferred, or waived
• the period the arrangement covers
• whether outgoings are still payable
• whether any deferred sum is repaid later, and on what schedule
• whether the concession affects rent reviews

If one of those pieces is missing, both parties may think they have a different deal.

Forgetting to align the side letter with fitout and access timing

Many businesses sign a lease before opening or before works are complete. The side letter might cover early access, rent free periods, landlord works, or consent for alterations. Problems arise when the lease, the works programme, and the side letter all use different dates or milestones.

This can affect:

• when rent starts
• who carries insurance risk during works
• who pays for delays
• whether the tenant can terminate if access is late
• whether council or other approvals are the tenant’s problem or the landlord’s

Before you sign a lease, make sure these practical points line up in one coherent set of obligations.

Ignoring default consequences

Some side letters say a concession disappears if the tenant defaults under the lease. That sounds standard, but default definitions can be broad. A late payment, an unapproved alteration, or a missed reporting obligation may trigger the loss of a valuable concession.

Businesses should check whether the side letter gives a grace period, a notice and remedy process, or an automatic termination of the benefit. The difference matters.

Assuming the side letter carries into a renewal term

A renewed lease term does not always preserve side letter arrangements. If the concession was tied to the original term only, the tenant may lose it when exercising an extension of lease or renewal option.

This often surprises businesses that negotiated:

• exclusive use rights
• special car parking rights
• reduced outgoings
• special signage positions
• caps on make good obligations

If the benefit matters beyond the first term, the document should say so clearly.

Missing related documents

The side letter may not be the only document changing the lease deal. There may also be a deed of lease, agreement to lease, fitout deed, rent concession letter, guarantee, disclosure material, and later variation documents. Looking at the side letter alone can be misleading.

The legal review should consider the full document set and how the pieces interact. This is particularly important where the business has inherited a lease from a previous operator or bought a business with an existing tenancy.

Not checking the effect on a future exit

A side letter can affect business value. If a favourable rent arrangement is personal to the current founder or current company, a buyer may not receive it. That can reduce the attractiveness of the business or change the buyer’s price.

Before you sign, think beyond the immediate deal. Ask whether the arrangement still works if you assign the lease, bring in a new investor, or sell the assets of the business.

FAQs

Is a lease side letter legally binding in New Zealand?

It can be, but not always. The wording, certainty of terms, signatures, and overall structure matter. A properly drafted side letter may be enforceable as a contractual agreement or lease variation.

Can a side letter override the commercial lease?

Sometimes. It depends on what the side letter says and whether it clearly states that it varies or prevails over parts of the lease. If the documents conflict and there is no priority clause, interpretation becomes harder.

Should a guarantor sign the side letter too?

Often yes, especially if the side letter affects payment obligations, timing, defaults, or other secured obligations. This helps reduce later arguments about whether the guarantee still applies to the changed arrangement.

Does a lease side letter transfer if I sell my business?

Not necessarily. Many side letters are personal to the original tenant and end on assignment or restructuring. Check the wording before you agree a sale or business transfer.

What is the main risk with an informal lease promise?

The main risk is uncertainty. If the promise is not properly documented, the parties may disagree later about whether it was binding, what it covered, and when it ended.

Key Takeaways

• A lease side letter can be useful, but it should never be treated as a casual add-on to the main lease.
• Before you sign, confirm whether the side letter is legally binding and exactly which lease clauses it changes.
• Check whether any concession is temporary, conditional, personal to the current tenant, or lost on default, assignment, or renewal.
• Make sure the side letter deals clearly with rent, outgoings, fitout timing, guarantees, security, and inconsistency with the lease.
• Do not rely on informal emails or verbal promises where the point affects cash flow, timing, or your ability to sell the business later.
• Review the side letter alongside the full lease document set so the commercial deal works in practice as well as on paper.

If you want help with lease variations, rent concession terms, fitout arrangements, guarantor issues, or a commercial lease review, you can reach us on 0800 002 184 or team@sprintlaw.co.nz for a free, no-obligations chat.