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LETS GET DOWN TO BUSINESS.

Question :
Is it possible to terminate a commercial lease in light of the significant impact that covid 19 will impact on my retail business, I have personal guarantees and a remaining term.

Question submitted 15/04/20 @ 03:59pm
Industry: COVID-19 Funding & Support
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  • Hey Darrell – this really does depend on the terms / clauses in your lease agreement, it is best to get a lawyer to check it over – maybe one of the lawyers (fully badged) on the platform can take a look for you – off line – Andy

    Hi Darrell

    Sorry to hear what you’re going through. Commercial leases aren’t my specialty but I can have a quick look at the agreement, give you my view and point you in the right direction (e.g. I can recommend a number of good property lawyers). Feel free to email the agreement to me at edwin.lim@hgmlegal.com. As Andy mentioned, it will all depend on what it says in your lease.

    Taking my legal hat off, I help manage a small portfolio of commercial properties (small retail) for a family trust so can give you that perspective. In my view owners and tenants need to constructively work together to help each other get through this.

    Have you had a chat with the landlord/owner to see if they can help? I know the last thing we would want is to see a tenant’s business suffer because of current circumstances. What we’re doing is proactively assisting tenants where possible by reducing rents and reviewing the situation month-by-month (i.e. continuation of rent reductions after we move out of Level 4). In your situation it might be the case that you could continue your retail business if the owner offers some sort of assistance. You might, for example, not want to lose the location of your business but feel like termination is the only option right now. But would the situation change if the owner agrees to waive or reduce rental payments for the next few months? Whatever you agree it’s important to record this in writing (e.g. emails / agreement).

    This needs to be balanced with the owners’ obligations to service their loans etc as there isn’t immediate relief available (there will be some relief in terms of depreciation on buildings etc that can be claimed later). The Government also announced on Wednesday some measures to help commercial property owners and tenants – there is a useful summary here.

    Feel free to send that agreement to me.

    Cheers
    Ed

    Hi Darrell, the short answer is normally “no”. But it depends on your lease. If you are on the 6th Edition ADLS form you should be entitled to an abatement of a “fair” proportion of the rent. Most tenants in non-essential businesses are getting at least 50% relief under this clause. That could be of some help short term? If the situation (e.g. lock down) is long term, there can be a right to terminate – but this is normally 9 months. Again, it depends on your lease. Happy to chat on 021 705 914. Phil

    Further information; we are on a bulk retail Property Council type lease, no force Marjeur clause but the ADLS no access clause is added and although we asked at start we only managed to get 9 months no access. The reality is we have negotiated for the next two month through and paid that amount but longer term there will be such a significant reduction in our core retail customers and offering it will mean a sales decline of say 70% for at least the next 12 months. SO we are looking to pivot substantially into more online offerings etc, the bulk retail purpose of the site is not required nor realistic for the foreseeable future. I know we could talk of frustration of contract or the 9 months no access (argument would be no access for what the site is designed). I also understand the landlords situation in NZ too but the rents for existing tenants will not be able to be adjusted faster enough for most tenants; and the reality is small businesses like us will go under with the burden of leases coupled with the obligation of personal guarantees. I note in Australia in some states they have enacted the option for commercial tenants to cancel there lease, is there a chance that would come here? I know this is detrimental to landlords but obviously I’m being selfish and thinking of my business, family and employees in this instance. It would also allow for a stronger bargaining position for tenants versus landlords as right now the landlord has all the power in most cases especially where they have a PG on the lease, very interested in thoughts and then once I get some feedback I will be interested in a more formal chat with a lawyer to work through.

    Thanks in advance and for comments already, just wanting to gauge general feedback.

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