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Covid-19: Commercial Leases - Rental

3 April 2020

We have been approached by a number of Landlords and Tenants querying what their Tenant’s obligation to pay rental is during the lock down.

This will depend on the terms of your lease..

The ADLS (Auckland District Law Society) Deed of Lease is the document mostly commonly used for commercial tenancies. In 2012 this lease form was updated to include a ‘No Access in Emergency’ clause in response to the Christchurch earthquakes.

ADLS SIXTH EDITION 2012 lease

If you have the ADLS SIXTH EDITION 2012 lease then the following will apply

Clause 27.5 of the lease provides:

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 because of reasons of safety of the public or property or the need to prevent, reduce or overcome any hazard, harm or loss that may be associated with the emergency including:

  1. A prohibited restricted access cordon applying to the premises; or
  2. A 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
  3. 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 Tenants business until the inability ceases.

On Wednesday the 25th of March 2020 the government declared a national emergency. As part of that declaration unless a premise is being used for an essential service, then everyone is to be at home and should not be accessing that premise. This meets the criteria to trigger clause 27.5 above.

As a Landlord and Tenant you need to determine what is a fair proportion of the rent and outgoings which ceases to be payable. We are suggesting that Landlords and Tenants come to an agreement on the fair proportion. This will be likely be different in each scenario, there is no hard and fast rule for this.

ADLS FIFTH EDITION or earlier, or a nonstandard lease

If you have a lease on the ADLS Fifth Edition or earlier, or a nonstandard lease then the following may apply

The earlier ADLS lease does not provide for a rental reduction in a time of emergency. These leases and any nonstandard lease would need to be reviewed on a case by case basis to determine if there have been any added clauses which apply.

If there are no added clauses, then the Tenant will remain liable to pay the rent and outgoings through the period.

However if you are a Landlord or Tenant, it will be worth considering what impact a full rental will have on the viability of the business going forward.

As a landlord you may consider, where possible allowing the Tenant some reduction to ensure you have a viable tenant when the lock-down ends.

As a Tenant, you need to consider that Landlords will have payments that they need to make, and consider what you can do to keep rental payments continuing.

What we can do to assist you

Our staff are working from home and can assist you in your discussions with your tenants, or your landlord.

If you need any assistance in working through the above please get in contact with our team.