News & Views
Mar 30

Covid-19 and its Effects on Commercial Leases

The COVID-19 pandemic has brought uncertainty and fear not just to the public, but to business owners. As of 11:59 pm on Wednesday, 25 March, New Zealand entered into a state of emergency and the country was “locked down” due to Alert Level 4 commencing.

We have been isolated, and many offices and other commercial buildings, deemed not to provide essential services have been left inaccessible. For many business owners, their businesses have had to close.

In light of this, many commercial property tenants are now exploring various avenues to minimise the economic blow that the COVID-19 pandemic is having. With many businesses no longer able to access their premise, many are beginning to question whether they need to continue paying the rent and outgoings.

In New Zealand there are common forms of leases used, some of these standard forms include the Property Council Lease and the Auckland District Law Society Deed of Lease (“ADLS Lease”). If your lease is based upon the ADLS Lease, there may be some economic reprieve during these challenging times.

The ADLS Lease
There has been considerable commentary in connection with the newest version of the ADLS Lease which contains provisions that deal with access and emergency events over the past few days. Initially introduced in 2012 as a response to the Christchurch earthquakes and access restriction issues including for reasons of safety of the public. The definition of emergency in that lease includes an “epidemic”; and the current “pandemic” would fall within this definition.

The clause reads “if there is an emergency and the Tenant is unable to gain access to the premises to fully conduct the Tenant’s business from the premises because of reasons of safety of the public or property or the need to prevent or overcome any hazard, harm or loss that may be associated with the emergency including:

(c) Restriction on occupation of the premises by any competent authority,

then a fair proportion of the rent and outgoings shall cease to be payable for the period commencing on the date when the Tenant became unable to gain access to the premises to fully conduct the Tenant’s business from the premises until the inability ceases.”

Where the lease contains the emergency access provisions, a tenant who is unable to gain access to the premises to fully conduct their business during the lockdown period, may be able to claim a reduction of the outgoings and rent. This reduction would apply during the time that access to the premises is restricted.

Unfortunately, the ADLS Lease does not specify how a ‘fair proportion’ is to be calculated, and case law has remained largely untested on this point. Therefore, what is a fair proportion of rent and outgoings will be specific to each case and how the tenant business uses the premises.

Alternative lease forms
Other forms of lease may also have provisions that allow for abatement or suspension of rent and/or outgoings where the tenant is unable to access the premise.

If you have an alternative form of lease, get in touch with our Commercial team, and we can explore with you the options available to you.

What next?
If you have not already done so, open discussions with your landlord or tenant. All parties should be conscious of the long-term relationship between them and negotiate in good faith to reach a solution together.

It would help if you also considered the following questions:

  • What type of lease have you signed? Does it contain an emergency access clause or something similar?
  • Do you have any insurance cover which may assist you during this time? (you may need to speak with your insurance broker before reaching any form of an agreement with your tenant or landlord).
  • What is a fair proportion to be abated for the rent and outgoings? Can the premises be used at all?
  • If the premise is being used as storage, what proportion of the floor area is storage?
  • What other support may be available to you during this time? (Look at Government subsidies and other recently accounted support options. Such as the wage subsidy).

Whatever the terms of your lease, we can review your lease and help you to understand your rights and obligations during this time. This will assist you in any abatement discussions you may enter into. If you have any queries get in contact with our commercial team:

Grant Proudfoot 03 687 7386
Maarten Dirkzwager 021 039 3225
Alice Caird 03 687 7381
Jenny Carter-Bolitho 03 687 7383
Stacey Blissett 03 687 7394

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