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Commercial Leases - COVID-19 Alert Level 4

The Auckland District Law Society’s Deed of Lease Sixth Edition (ADLS lease) is commonly used for commercial leases.

As a consequence of the Christchurch earthquakes the ADLS Lease was updated to deal with situations where a tenant could not have access to their premises where there is an emergency.  That provision is set out in clause 27.5.  The clause provides that a “fair proportion of the rent and outgoings shall cease to be payable from the period commencing on the date the tenant became unable to gain access to the premises to fully conduct the tenants business from the premises until the inability ceases”.

The ADLS Lease defines “Emergency” to include a situation that is a result of any event, whether natural or otherwise including an epidemic.

Clause 27.5 requires:

1.     there to be an emergency; and

2.     the tenant to be unable to gain access to the premises to fully conduct the tenant’s business because of a number of reasons associated with the emergency.

Clause 27.5 has not yet been interpreted by the courts. What proportion of the usual rent would be a ‘fair proportion’ depends on the individual circumstances of the commercial tenant and landlord.

Landlord and tenant clients we have been working with over the past two weeks accept that the imposition of the Covid-19 Alert Level 4 is an emergency within the definition.  Landlords and tenants are very focused on what is a “fair proportion of rent and outgoings” that will cease to be payable.

The arguments on fairness

Tenants are saying “Fairness” must be assessed by reference to the extent the tenant is unable to access the premises to fully conduct its business, and that being able to operate remotely is irrelevant.

Landlords are saying “Fair” should be assessed by reference to the extent a tenant can still conduct its business without access.

Essential businesses make the picture even more complicated where a tenant might be able to use its premises either partially or fully to deliver essential services.

Our recommendation

Landlords and tenants should try to reach a commercial resolution.  There is growing evidence that in many situations where tenants cannot occupy premises (even if they can work from home) that the parties are agreeing that 50% of rent and outgoings will cease to be payable.

Proposed law changes

The Government has announced law changes will be made which will apply to all notices to cancel leases by extending the current 10 working days timeframes to 30 working days.

Further Information

The link below provides more detail relating to commercial leases and their enforcement.

https://www.justice.govt.nz/about/news-and-media/covid-19-news/commercial-property-guidance-for-lawyers-during-covid-19/

During New Zealand’s lockdown, even though our offices are closed, it is business as usual for Dawson Harford. We are here to support and assist you by phone, email and video conferencing to help keep you and your business going.