Good News for commerical tenants

In Legal Lines, November 20216 MinutesBy Danielle BestonDecember 11, 2021

When New Zealand was plunged into a level-4 lockdown at midnight on Wednesday, 17August, several things went through my mind.

Having experienced this before, I started running through a checklist of things I needed to take care of. The first was to dash to the local Countdown – a decision I would later regret because the supermarket became a location resulted in me having to undertake a period of self-isolation.

I then bundled computers, files and stationery from my office into my car until it was full, not knowing when I would be back. So, when the government announced a proposed new law that will allow for an abatement of rent because of restrictions put in place to combat Covid-19, I was relieved to know that there would be guaranteed relief from the financial hardship that comes with leasing a commercial property.

The rationale

Covid-19 lockdowns result in many businesses not being able to operate from their usual premises, with staff members having to work from home. Mine is one of those businesses that has been impacted in this way because I cannot meet with clients in level 3 or 4 at my office. My day-to-day operations are also significantly disrupted because my home office is nowhere near as well equipped as my work premises.

I can perform most of the tasks I normally do, but often they take a lot longer and as a result, I cannot work as efficiently during lockdowns.

The proposed amendment to the Property Law Act 2007 recognises the challenges faced by commercial tenants during the pandemic.

If the legislation is passed, a clause will be inserted into leases that provides that a fair proportion of rent and outgoings will cease to be payable when there is an epidemic and the tenant is unable to gain access to all or any part of the leased premises to fully conduct their operations of health or safety related to the epidemic. While landlords will be frustrated by the proposal, tenants are likely to welcome lockdown and are unable to negotiate an outcome with their

Does it apply to me?

This clause is similar to the rent abatement provisions in clause 27.5 of the Auckland District Law Society Deed of Lease. If your lease agreement already includes a ‘no access in emergency’ will not apply.

I am lucky that during previous lockdowns, my landlord has been open to negotiating an abatement of rent due to my inability to access my premises because of Covid-19, despite the lack of a ‘no access in emergency’ clause in my lease.

If we enter into a rent variation agreement about the latest lockdown before the proposed new law comes into force, then the new clause will not apply to me. What is interesting is that to outgoings. But as this is specifically mentioned in the amendment, then it should still be open to me to pursue reliefin this regard.

Time frame

The proposed new clause would apply in respect of a rental period ‘all or any of which’ is in the period that started on 28 September 2021. That suggests that if you pay your rent by calendar month, then the clause would apply for September’s rent and outgoings but not for August. What is certain is that it will not apply retrospectively to previous periods of lockdown occurring in New Zealand.

‘Fair proportion’

The fair proportion of rent and outgoings that will cease to be payable when there is an epidemic is to be agreed by the landlord and the tenant. However, the clause does not provide guidance as to what is to be considered when deciding what constitutes a ‘fair proportion’.

When the government first proposed making statutory amendments to insert a new contractual term into existing leases that would give tenants the right to claim rent relief, it set out several factors to be considered. These included the impact on the tenant’s business, the landlord’s mortgage obligations, the parties’ respective profits in recent years and the parties’ ability to survive financially. None of these factors are repeated in this year’s proposed clause but it appears from a common-sense point of view that these are all criteria that could arguably be relevant.

There has not been any guidance from the courts as to how to assess fairness because the Auckland District Law Society’s Deed of Lease requires the parties to submit to any dispute to arbitration, which is a private dispute resolution process, and those decisions are not publicly available. I note that the same requirement will also apply to the proposed new clause it requires all disputes to be resolved by arbitration.