fbpx

LETS GET DOWN TO BUSINESS.

Question :
While we are in Lock-Down, as a tenant am I able to get some relief from my rent as a result of a lack of access? I have seen in some tenancy/lease agreements they have a ‘No Access in Emergency’ clause which then talks about a ‘fair proportion of the rent and outgoings shall cease to be payable for the period’.

Answer by : Graeme Bulling
First you need to establish if you have such a clause in your lease document. If you have that clause you need to establish if it applies to your circumstances.  It seems that the formal declaration of a state of emergency, is being suggested as the trigger for this clause to be active. So if you have the clause in your lease, you might seek advice from your business association group, employers association or similar who might already have obtained legal advice. Alternatively approach your landlord and say that you are relying on the clause for relief and get a voluntary agreement in writing to cover that. Otherwise, have a chat to your lawyer.  Discussion about this will be going on among lawyers and there there should be some reasonable certainty as to what the provisions in your lease allow you to do.

Question submitted 26/03/20 @ 06:40am
Industry: Legal
207
VIEW
3
VOTE
  • thanks Graeme – super helpful

    Hi Andy,

    The starting point is that in the absence of an express provision in the lease for abatement of rent, the Courts will not imply one. The law does not permit an adjustment of a contractual liability to pay rent simply because it is fair to do so.

    Whether an express abatement clause will apply to the current circumstances will depend on the wording of the particular clause.

    Many commercial leases will be on the current (sixth) edition of the Auckland District Law Society (ADLS) form of lease. Subclause 27.5 of that form of lease provides that 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” as a result of reasons of safety of the public that may be associated with the emergency, then a fair proportion of the rent and outgoings shall cease to be payable. Emergency will likely include COVID-19.

    Note that any lease executed on the ADLS fifth edition (or earlier) form of lease will not contain these provisions.

    What is a ‘fair’ rent abatement in these circumstances will need to be assessed on a case by case basis (e.g. can your business still operate/ use the premises etc) – so talk to your landlord in first instance.

    It would be helpful if some relevant and authorative body such as the Property Council, Auckland District Law Society, or NZ Law Society could promptly put out some guidelines and interpretation on this issue based on any legal precedents. This might avoid disputes and legal costs for the individuals in that position.

    Great discussion guys, helpful. As a SME myself, with that clause, I’ve emailed the landlord, outlined what a great relationship we have, how we’re both impacted by the national emergency, outlining the clause in the lease and its relevance because of COVID-19, outlined and how we are both in difficult times and uncertain of the future, therefore I’ve stopped the automatic payments, offered to pay a proportion, and offered to work with him to work through things from there. I’m letting him get back to me. But I’ve stopped the payment. So at the moment, I’m paying nothing until he gets back to me. In my opinion, I’ve done everything a leasor would be expected to do, in such an unprecedented emergency situation and it’s a commercial negotiation from there. Correct?

    Hi Rob
    Yeah that seems very reasonable. Hopefully soon we will see some legal opinions in this clause. I understand there are conflicting legal opinions on this. But if you have that clause it seems reasonable that you pay zero rent while you cannot use your premises due to the emergency. I doubt that extends to outgoings though. So if you dont want to be in breach of your lease you might pay the outgoings component.

    Hi Rob
    Yeah that seems very reasonable. Hopefully soon we will see some legal opinions in this clause. I understand there are conflicting legal opinions on this. But if you have that clause it seems reasonable that you pay zero rent while you cannot use your premises due to the emergency. I doubt that extends to outgoings though. So if you dont want to be in breach of your lease you might pay the outgoings component.

    Hi Rob
    Yeah that seems very reasonable. Hopefully soon we will see some legal opinions in this clause. I understand there are conflicting legal opinions on this. But if you have that clause it seems reasonable that you pay zero rent while you cannot use your premises due to the emergency. I doubt that extends to outgoings though. So if you dont want to be in breach of your lease you might pay the outgoings component.

    One of my colleagues was talking the other day to a specialist commercial property lawyer who has spent the last 2 weeks doing nothing but advise on/negotiate clause 27.5 rent relief. He is most commonly seeing relief agreed at 50%, although 75% is not uncommon. There have been a few instances of 100%. There have been arguments centered around how much the tenant is continuing to “use” the premises (including for storage), one factor seems to be whether the tenant has on-premise servers that are still being used. So businesses that operate in the cloud potentially have a stronger argument for higher relief.

    Hi all,

    Note also the announcement yesterday that if commercial landlords seek to cancel leases for tenants’ failures to pay rent the landlords will now have to give 30 working days’ notice to cancel a lease, instead of the current 10.

    This applies both to the period that the tenant is in arrears before the landlord gives notice, and the time period that the tenant has to remedy a breach. This will apply retrospectively.

    Phil

  • You must be logged in to reply to this topic.