Many tenants are likely to be entitled to relief.
The current COVID-19 lockdown means that many tenants of commercial premises cannot access their premises even though the premises have not been damaged or destroyed. This was also the case for many commercial tenants after the Canterbury earthquakes when a large part of Christchurch was red zoned and no-one was allowed in.
What happens with the lease as a result of the COVID-19 lockdown will depend on the form of lease that the parties have agreed to.
Auckland District Law Society (ADLS) lease
The most commonly used commercial lease form in New Zealand is the Auckland District Law Society(ADLS) lease and the current edition of this lease(Sixth Edition 2012(5)) has specific clauses that apply when the tenant cannot get access to their premises for reasons beyond their control. These sub clauses are number 27.5 and 27.6 in the Second Schedule and they are worth reproducing in full as follows:
No access in emergency
27.5 If there is an emergency and the tenant is unable to gain access to the premises to fully conduct the tenants business from the premises because of reasons of safety of the public or property or the need to prevent reduce or overcome and hazard, harm or loss that may be associated with the emergency including:
(a) a prohibited or restricted access cordon relating to the premises; or
(b) prohibition on the use of the premises pending the completion of structural engineering or other reports and appropriate certifications required by any competent authority that the premises are fit for use; or
(c) restriction on occupation of the premises by any competent authority;
then a fair proportion of the rent and outgoings shall cease to be payable for the period commencing on the date when the Tenant became unable to gain access to the premises to fully conduct the Tenant’s business from the premises until the inability ceases.
27.6 This sub clause 27.6 applies where sub clause 27.5 applies and the premises or building of which the premises form part are not totally or partially destroyed or damaged resulting in the lease being cancelled as provided for in subclauses 26.1 or 27.4. Either party may terminate this lease by giving 10 working days written notice to the other if:
(a) the Tenant is unable to gain access to the premises for the period specified in the First Schedule; or
(b) the party that terminates this lease can at any time prior to termination establish with reasonable certainty that that the Tenant is unable to gains access to the premises for that period.
Any termination shall be without prejudice to the rights of either party against the other.
The lease also contains a definition of emergency which seems to us includes the current CVOID-19 alert level 4. That that definition is as follows:
““emergency” for the purposes of clause 27.5 means a situation that:
(1) is a result of any event, whether natural or otherwise, including an explosion, earthquake, eruption, tsunami, land movement, flood, storm, tornado, cyclone, serious fire, leakage or spillage of any dangerous gas or substance, plague, epidemic, failure of or disruption to an emergency service; and
(2) causes or may cause loss of life or serious injury or in any way seriously endangers the safety of the public or property; and
(3) the event is not caused by any act or omission of the Landlord or Tenant.”
The default ‘no access period’ in the First Schedule (referred to in clause 27.6) is 9 months but the parties may have agreed to a different period and we have seen periods as short as 3 months.
At this stage in the lockdown we suggest that all commercial tenants that lease premises but are unable to access them or use them as usual due to the lockdown check their lease to see if they have sub clause 27.5 or a similar clause in their lease. If they do, then we would suggest that they contact their landlord sooner rather than later (and certainly before their next rent payment is due if possible) to start the process of determining an appropriate reduction in their rent and outgoings
For Landlords we suggest that they check their insurance policy and contact their broker or insurer. It may be that a Landlord is insured against this sort of risk.
It may be that a Landlord and Tenant can agree on what proportion of the rent and outgoings should cease to be payable during the COVID-19 lockdown but if they cannot we would suggest agreeing on process to use a valuer or valuers to decide was is appropriate.
Other forms of lease
The Property Council Retail Lease also has a clause that may apply during the COVID-19 lockdown but it is much narrower and depends on the Landlord having relevant insurance. Landlords and Tenants with Property Council and other leases should also check their leases and seek legal advice.
Tenants on expired leases (situation known as “holding over”)
In most cases where a lease has expired but the tenant continues to occupy the premises the terms of the lease that the parties agreed to will continue to apply except that either party may terminate the lease on 20 working days’ notice. In these cases Landlords and Tenants should also seek legal advice.
For more information or advice on the above or related issues please contact any one of the lawyers at Innes Dean Tararua Law Limited by calling 06 358 6075, emailing firstname.lastname@example.org or using the contact information on our website www.innesdean.co.nz