Over the last few months, we have seen the COVID-19 pandemic unravel and disrupt nearly all aspects of our lives both on a domestic and international scale. On midnight 25 March, New Zealand effectively went into complete shutdown. As a result, an unprecedented number of businesses were prevented from entering into their premises due to mandatory government restrictions that accompanied the Alert Level 4 lockdown.
As a commercial landlord, you may be wondering if you are legally entitled to rent payments from your tenant. As a tenant, you will be asking if you are still obligated to pay rent, even if you were unable to access the premises for the duration of the lockdown.
If your Deed of Lease has been prepared on the current (sixth) edition of the Auckland District Law Society form, clause 27.5 provides a standard “no access” clause, which allows for a reduction in rent and outgoings where “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”.
“Emergency” is defined by clause 47.1(d) to include any situation that is a result of “any event, whether natural or otherwise, INCLUDING AN EPIDEMIC; and causes or may cause serious illness or in any way seriously endanger the safety of the public or property; and the event is not caused by any act or omission of the landlord or tenant.” In the COVID-19 context, it is very likely that the level 4 lockdown would fall within this definition, given that a state of national emergency was declared by the government on 25 March, in addition to an epidemic notice being issued under the Epidemic Preparedness Act 2006.
Note that this clause allows for a reduction in a “fair proportion” of the rent and outgoings for the duration of the lockout, as opposed to a 100% reduction or waiver of rent altogether. The amount of reduction will be different in each situation, and requires an evaluation of all the circumstances including the ability of the business to continue its operations elsewhere (ie. work from home) and the financial impact of the lockout. For example, an online retailer may be able to continue its business throughout the duration of the entire lockdown, whereas a café will lose its entire revenue stream. If a tenant wants to stop paying rent or reduce the amount they pay, they will have to provide evidence such as loss of revenue to support any claim for rent abatement or reduction.
If you are a commercial landlord or tenant and are wondering what your obligations and entitlements are as provided for by your lease agreement, it is in your best interests to seek professional legal advice in regards to your lease.