COVID-19 – Alert Level 4 – lease obligations and landlord/ tenant discussions

COVID-19 – Alert Level 4 – lease obligations and landlord/ tenant discussions
This is a brief note, but should be useful when discussing with your landlord, tenant and/or lawyer depending on your situation.

As with many businesses in New Zealand who are forced to shut their doors, rent and outgoings during the shutdown period must generally be paid unless there are specific provisions in the lease or agreement reached between landlord and tenant can be reached.

Your lease is specific to your premises, although there are some widely used forms of lease documents, such as the ADLS Lease. Many of those standard form leases are adapted and changes negotiated. I strongly recommend that you consult with your legal adviser to ensure you understand the terms of your lease as you progress negotiations with your landlord. I have however, put together some general information relevant to the current circumstances and common clauses in leases to ensure you are better informed and prepared for discussions with your landlord or your tenant depending on which side you fall.

General comments

• Tenants of non-essential businesses who have a standard ADLS Sixth Edition form lease (from 2012 onwards) which includes clause 27.5 (see below) will generally be entitled to an abatement of a fair proportion of rent and outgoings if they are forced to close.
• Tenants of non-essential businesses who are on older form ADLS leases (Fifth Edition and before), or who are on other forms of leases without a clause similar to 27.5 will generally not be entitled to an abatement of rent and outgoings if they are forced to close.
• Landlords whose tenants are entitled to an abatement of rent generally will not be entitled to claim for loss of rents insurance cover, because there has been no material damage event to trigger that cover.

The idea is fair abatement and not a blanket period for eg. 3 months etc unless the situation is such that it justifies etc.  It will depend also on the situation and tenants business.  The tenant may go out of business if the impact is material so the parties may need to be practical as well.  You may also ask for evidence or need to provide evidence and copies of contracts or emails showing how the business is impacted (including finance statements for comparable periods) prior to any agreement between the parties.

As a tenant, you may approach your landlord to negotiate a fair rental adjustment during the lockdown period - you are not able to access your premises for business.  I understand tenants are receiving rebates of up to 50% rental reduction for between 2-3 months for the months of April, May and June for now for instance.  There is no blanket rule and both parties may need to be practical and sensible about these matters whilst the Alert Level 4 applies.

Further useful information and links during the Covid-19 lock down period:-

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

-         https://www.belong.org.nz/covid19-resources