Commercial Leases During COVID-19

Conway Lane Law remains open and we are working remotely throughout the lockdown period.  We have received many calls from clients (both tenants and landlords) asking for advice regarding their commercial leases during the COVID-19 lockdown and particularly whether there should be rent reductions as a result of forced closures during the lockdown.

Different forms of lease

The first thing to note is that not all business leases are the same.  There are many different forms and versions of commercial leases used in New Zealand, including the Auckland District Law Society (ADLS) Deed of Lease, the Property Council New Zealand lease forms as well as other “bespoke” lease forms used for motels or shopping malls, for instance.  Your particular form of lease will dictate the position with regard to any possible rent reductions during the lockdown period.

Here we will focus on the ADLS lease, which is most common among our clients.

ADLS deed of lease

The current edition of the ADLS lease (Sixth Edition) was created in 2012.  It included some amendments and additions in response to situations faced by landlords and tenants following the Canterbury earthquakes.  One such addition was a “rent reduction” provision to cover situations in which tenants are unable to access their premises in an emergency situation.

Please note that prior editions of the ADLS lease (i.e. Fifth Edition and earlier) do not contain the rent reduction provisions, so if your lease was entered into prior to 2012 it is unlikely to provide this form of relief.

ADLS deed of lease – Sixth Edition

Clause 27.5 of the ADLS sixth edition lease provides that if there is an emergency (such as the COVID-19 pandemic) 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 the need to prevent, reduce or overcome any hazard, harm or loss associated with the emergency, then a “fair proportion” of the rent and outgoings shall cease to be payable for the duration of the period in which the tenant is unable to access the premises.

What is a “fair proportion” is open to negotiation and may depend on the type of business the tenant operates from the premises.  For example, a café or restaurant is less likely to be able to conduct its business in any capacity during the lockdown than, say, a professional services firm that can carry on at least some of its work remotely.

Summary

There is no black and white answer here.  We remind clients that neither party has caused the lockdown and both parties stand to lose as a result of it.  We encourage you to exercise some understanding and reasonableness in your negotiations.

Please contact our firm on 03 909 0101 or by email if you have concerns about your business lease and/or rent so that we can advise you on the options available to you and keep you informed with the latest information as it becomes available.

Tim Brown has specialised in business/commercial law for over 13 years. Tim is an expert in all business law matters, including establishing new businesses, buying and selling existing businesses, restructuring and succession planning, commercial contracts, capital and debt funding, corporate governance and compliance.

For further information on business structures, please contact Tim.



Tim Brown (LLB, BCom)
Director / Solicitor

First Floor Conway Building
188 High Street
PO Box 576
Rangiora 7400

P. 03 909 0101
F. 03 359 8240
tim@conwaylaw.co.nz