COVID-19 – Commercial Leases

With the country being plunged into a level 4 lockdown again, most landlords and tenants will recall the uncertainty that followed when the country was put into lockdown last year.

With tenants not being able to open up shop and effectively trade, the lockdown put a halt on, or caused significant disruption to a tenant’s ability to pay rent and carry on with business as usual. With that, it was then put to many landlords on whether a rent reduction could be agreed in the circumstances.

The current Auckland District Law Society (‘ADLS’) sixth edition deed of lease provides that in an emergency, if a tenant is prevented from having any access to the leased premises, a fair and reasonable proportion of the rent and the outgoings shall cease to be payable from that date the access is prevented. See clause 27.5 of the ADLS sixth edition deed of lease.

In the last lockdown, there were so many unknowns but overall, it seemed that both tenants and landlords were able to resolve the issue without many difficulties.

How much is a fair and reasonable abatement of the rent and outgoings? What’s fair and reasonable?

Some of the factors you may need to consider as a landlord or tenant include:

• How long has the tenant leased these premises for? Are they long standing tenants?
• How much longer is there on the lease? Do you want to jeopardise the future ongoing relationship?
• Is the tenant in breach of any of their existing obligations? If there are significant rent arrears, are there other steps that need to be taken?
• Is the tenant operating an essential business? Are they choosing not to operate an essential business instead?
• Is the tenant able to continue operating their business remotely? What steps can the tenant take to continue operating differently?
• What government assistance are they eligible for? Are the tenants eligible for the Resurgence Support Payment?
• Is the business an essential business that could operate at level 4?
• What percentage of the business is run remotely away from the business? Can they work at home and potentially see clients without the need to use leased premises?

After considering the above factors and any other considerations you may think relevant to your particular lease, it is also important to bear in mind that there are always two sides to every story.  There is no right answer so if you are prevented from accessing your premises and you do not run an essential business you could be in a strong position to ask for a significant abatement of rent and outgoings such as 75% or 100%. But this may not be a situation that can be easily accommodated for by the landlord.

What if the lease does not have a clause 27.5?

Whilst we say that the majority of leases in NZ are in the ADLS fifth or sixth edition format, there are a plenty that are not. You should check your lease to see if there is provision for abatement in an emergency. Even if there isn’t a relevant clause, it may be worth it as a tenant to approach the landlord and ask for this to be considered.

If you would like more advice regarding your lease or if you require some assistance on reaching an agreement, please contact Wakefields Lawyers on 04-970-3600 or email info@wakefieldslaw.com.