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LETS GET DOWN TO BUSINESS.

Question :
We are negotiating with 10 landlords for rent due on our retail premises, what deals are other businesses striking with regard to a reduction in rent at this time?

Question submitted 27/03/20 @ 11:10am
Industry: Retailing
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  • Morning
    In retail we are at the pointy end of the supply chain
    There is no doubt and its certainly the messaging that is out there
    that we all need to share in this ..
    I am not a legal advisor, I am a vertical retailer that has taken a common
    sense and collaborative approach to managing this, so hopefully this is helpful

    Firstly look at your lease as some have a clause that offers some protection
    ( legal advisors in the group may want to add to this )

    I have ten fashion retail stores and absolutely NO sales ( including web)
    I have simply sent an email out to all my landlords
    to advise them that I will need at least a 3 month “rent holiday”
    and I will communicate with them from then, all my automatic rent payments have been stopped.

    Sure I have had mixed reaction
    Some landlords have been awesome, others have tried to deal ( ie pay 50% )
    some have said no and some have been silent.

    Regardless
    I have stopped all rent payments and I am focusing on my people and topping up their wages
    so they have security .

    Also don’t also forget about Eftpos, phone and internet and other variable payments that you may have
    everything is negotiable in this environment

    Happy send template I sent to my landlords if anyone wants it
    annah@strettonclothing.co.nz

    As we all understand, every tenant situation is different, but for non-essential retail, the income tap has been turned off for the foreseeable future. Feedback so far is mixed:
    – some seem to be getting 50% rent reductions agreed
    – a few have a rent-free period based on long-standing relationships and tenure.

    By and large, the majority we have talked to (both landlords and tenants) are waiting to hear more from the government. I’ve heard some retailers saying their landlords are trying to distance themselves from the issue and others have been difficult to contact.

    This may also be helpful and very much reflects my common sense reasonable man approach
    from The team at McVeagh Fleming

    Leases in the Time of Covid-19
    We have been fielding an unprecedented (but understandable) number of queries from both tenant
    and landlord clients wanting to understand the legal position in respect of either termination of
    commercial leases, and obligations in respect of rental/outgoings payments.
    Ideally you should be taking legal advice as to your obligations under a commercial lease, but we
    thought it may be useful to outline the general position to provide some comfort (or not):
    Step 1: Check your lease
    There is no one-size-fits-all answer and much would depend on the drafting of the commercial lease,
    so do check the terms.
    If the lease is on the ADLS standard form commercial lease (post 2012) then in light of the current
    Level 4 lockdown you may be able to use the ‘No Access in Emergency’ clause which:
    (a) provides that a fair proportion of rent/outgoings will cease to be payable from the time of the
    emergency, until it(the emergency) ends; and
    (b) allows for termination of the lease (by either party) with 10 workings days prior written notice.
    It’s important to note that you can only use this right of termination if:
    (i) You don’t have access to the premises for the No-Access time period stated in the
    First Schedule to the lease (typically 9 months, but you’d be wise to check if this has
    been altered to a longer (or shorter period) or amended in any further terms to your
    lease); or
    (ii) if you can establish with reasonable certainty that the emergency will last longer than
    the No-Access period stated in the First Schedule. In our view, while a tempting
    proposition, none of us can tell with any reasonable certainty how long Covid-19 or
    the current Alert Level 4 will go on for, and using this particular angle to terminate
    could be risky and arguably may expose the terminating party to liability for wrongful
    repudiation/termination.
    In respect of rent reduction/abatement under the ADLS agreement, as a departure point, our view is
    that during the Covid-19 Alert Level 4 lockdown, for the majority of ‘non-essential services’ businesses,
    a ‘fair proportion’ of rent/outgoings is $0. The caveat to that view is that in cases where the premises
    are able to be used to some degree ie premises where the business is an essential service, or a
    warehousing facility etc, then rent will either continue to be paid at the agreed rate, or the tenant
    should be negotiating for a temporary rent reduction based on the extent to which the premises are
    able to be used.
    If your lease is on an older form of the ADLS lease, or a more bespoke arrangement, then you’d be
    wise to review and take legal advice on whether the lease contains any similar No-Access or Force
    Majeure clauses which may permit termination or abatement/reduction of rent during this pandemic.
    It may be (often in the case of retail leases where the premises are in a shopping centre/mall) that the
    lease may be silent on termination/rent reduction in emergency type situations, in which case you
    should get on the phone right now to your Landlord to try to negotiate some form of reprieve.
    2
    2360871-1.BJL
    There are other possible avenues that may be utilised ie Doctrine of Frustration etc, but they tend to
    have high thresholds and are oftentimes difficult (read expensive) arguments to run.
    Step 2: Talk to your Landlord/Property Manager
    Landlords/Property Managers will be in the same state of flux as tenants and whilst keen to ensure
    that rental keeps coming in, should similarly be keen to ensure that they still have a tenant occupying
    the premises when all of this is over.
    As outlined under the Step 1 heading, if your lease doesn’t address rent reduction/termination in
    emergency situations, either get in touch with your landlord or have a lawyer do so, to discuss a
    compromise situation, after all, some money being paid as rent, is better than none!
    Step 3: Keep calm, take a breath, take care of your loved ones and stay safe. This too, will pass.
    The team at McVeagh Fleming are all operating remotely and will do all we can to assist you with any
    legal queries (property related or otherwise) during these crazy times.
    Our thoughts are with all of you, and we wish you good health. Kia Kaha!

    Hi Annah
    Can you clarify if all your leases have the emergency relief clause, or if you have just taken unilateral action? And are you paying the outgoings which do not seem to be covered by that clause?

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