New Zealand faces an unprecedented government mandated lockdown to prevent the spread of Covid-19 and as a result, a significant number of New Zealand businesses are unable to access their business premises due to such restrictions.
If the current (sixth) edition Auckland District Law Society (ADLS) Deed of Lease (Lease) was used, it will contain the “no access in emergency” clause (providing that this clause has not been amended or struck out), which allows for a rent reduction of a “fair proportion” in situations where the tenant is unable to access and conduct normal business activities from their business premises.
Emergency is defined under clause 47 and covered within that definition (among others) is an epidemic, that seriously endangers the safety of the public or property, by an event that is not caused by the Landlord or Tenant. As there is no definition of “fair proportion” in the Lease, a possible suggestion is that the rent be reduced to the extent that the tenant is unable to conduct their business from the premises.
The general view is that a tenant may be able to make a claim under this clause providing that:-
- They are using the sixth edition of the ADLS Lease (unamended and containing clause 27.5); and
- They are not operating an “essential service” from that premise.
Tenants whose businesses are classed as an essential service, and those whose lease does not contain the “no access” clause, are in a more complicated position and may not have the (legal) ability to claim an abatement for rent and outgoings.
In instances where there is no contractual right for a tenant to have an abatement, a landlord may still choose to do so on the basis that is improves their chance of having a tenant when the lockdown has been declared over. This will depend on factors such as the relationship between the parties, tenant’s history of rent payment, and other business considerations (such as finding new tenants in the current economic climate).
During such a challenging time, we recommend that both parties approach the situation with the idea of a partnership between them. A failure to reach agreement could result in costly and time-consuming arbitration or litigation proceedings.
Whatever the situation, it is worth considering that a tenant in the premises in most cases is better than no tenant at all.
The most important note to make at this point, is that every landlord and tenant’s position is different, and a cookie cutter approach will not work for all.
If you require specific advice, Rice Craig is “open for business”. Contact a member of our team to discuss your situation.