The Covid-19 situation is rapidly changing by the day. Already its impacts are being felt across industries and regions, impacts which will only become more pronounced as New Zealand goes into lockdown.
This is particularly so for ‘non-essential’ business tenants, who have been forced to close during the Covid-19 Alert Level 4 stage, but remain subject to a lease for their business premises. Whether such a tenant is entitled to any rent relief from a landlord is not straightforward and will depend on the contractual terms of the lease. We provide some guidance below on common forms of lease, but recommend that landlords and tenants seek legal advice on their rights and obligations regarding rent relief.
ADLS Lease Sixth Edition 2012
An epidemic is included as an emergency under the current ADLS lease’s no access provisions. Accordingly, a tenant under this form of lease will be entitled to a rent and outgoings reduction if it is unable to gain access to its premises to fully conduct its business during the lockdown. The rent and outgoings reduction will be a “fair proportion”.
What is a “fair proportion” will depend heavily on the specific circumstances of both tenant and landlord and the extent to which it is unable to fully conduct its business. While a tenant won’t have to pay full rent, it is unlikely that a full abatement of rent and outgoings is ‘fair’ – for both landlord and tenant.. A tenant still has exclusive possession of the premises (and continuing rights to return to the premises when the lockdown ends), may have equipment stored there during the lockdown or other systems (such as servers) within the premises which they can use to work or operate outside the premises, and a landlord may have no insurance cover for the lost/reduced rent and may still have to meet costs of finance for the premises. Because of the nuances, we recommend landlords and tenants seek legal advice as to what a fair proportion reduction might be depending on their specific circumstances.
Older editions of the ADLS Lease
Earlier editions of the ADLS lease (fifth edition or earlier), unless they have been amended or contain further terms which address the issue, do not contain the ‘no access’ provisions of the 6th edition. As such, tenants are not contractually entitled to a reduction in rent. Landlords and tenants may negotiate rent relief but there is likely no contractual mechanism to do so.
It is also highly likely that tenants, who are required to close during the lockdown, cannot terminate a lease because of the inability to access the leased premises.. This is because of the high threshold for a lease to be considered ‘frustrated’ – this would normally require the premises to be inaccessible or untenantable for more than a temporary period. However, please contact us if you wish to consider your individual circumstances.
Property Council New Zealand Lease 2013
The Property Council New Zealand Lease 2013 (which is often used for office spaces and shopping centres) provides for rent relief, but this is a two-step approach (unlike the ADLS 6th edition lease). First, there must be no access available to the premises because of the Government directive; secondly, the landlord also needs to be able to make an insurance claim in respect of lost rent solely because of the inaccessibility. The two-step approach may prevent rent relief as there has been no physical damage to the premises which has prevented access – normally, a landlord will only have cover for lost rent which is triggered by physical damage. Again, the circumstances of each landlord and tenant is different and we recommend you seek further advice on your rights or obligations under this form of lease.
Other bespoke leases
Absent agreement between a landlord and tenant, whether or not there is any entitlement to receive, or obligation to provide, rent relief is determined solely by the contractual terms of the lease. In our experience, such bespoke leases tend not to provide for rent relief, but the terms of each lease will need to be considered carefully.