Q2 Special COVID-19 Bulletin: COVID-19 and Commercial Rent Payments



COVID-19 and Commercial Rent Payments

Many of our clients lease commercial premises and rent is typically payable monthly in advance on the first day of the month (tomorrow).  Clients have been asking us what relief is available (if any) in relation to their monthly lease payments.

After the Christchurch earthquakes the standard Auckland District Law Society (ADLS) commercial lease agreement was changed to include a clause 27.5, the relevant parts of that clause are as follows:

“If there is an emergency and the Tenant is unable to gain access to the premises to fully conduct the Tenant’s business from the premises because of reasons of safety of the public or property or the need to prevent reduce or overcome any hazard, harm or loss that may be associated with the emergency including: …

     c.  Restriction on occupation of the premises by any competent authority,

then a fair proportion of the rent and outgoings shall cease to be payable for the period commencing on the date when the Tenant became unable to gain access to the premises to fully conduct the Tenant’s business from the premises until the inability ceased.”

We have been informed that clause 27.5 means in the main rent and outgoings, with the possible exception of insurance, will abate by 100% for the Lockdown Period.  The exceptions to this will be businesses that operate an “essential service” during the Lockdown Period or circumstances where access to the premises is less relevant.

The standard ADLS Lease prior to 2012 contained no provision relating to lack of access.

If the standard ADLS Lease is prior to the 2012 version, or if a lease makes no provision for “no access” then:

i.  The Tenant will have a right to claim for its losses or damages, by not being able to access the premises, which may well end up being a fair and reasonable proportion of rent or outgoings, similar to the clause in the standard ADLS Lease since 2012.

ii.  If the Tenant provided an essential service, entirely or in part, then in a similar way their claim to damages would be reduced.

News media has reported that The Warehouse Group has penned a letter to its landlords relying on the ‘no access in emergency’ lease clause to stop paying rent.  A letter from The Warehouse to its landlords, obtained by NBR said,

“Due to the government activating Alert Level 4, effective from 11.59pm on Wednesday night, we will be unable to trade from the premises which we lease from you due to the restrictions imposed.”

“We will be relying on clause 27.5 of our lease and as a result all rent and outgoings cease to be payable from March 26, 2020, continuing during the period we are unable to trade.”

The above is general commentary only and each business should take expert legal advice. Specific legal advice as to your specific circumstances should be sought, and this commentary should not be relied upon as if it is specific advice to you.

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