IMPACT OF COVID-19 ON COMMERCIAL LEASES
Landlords and tenants have been eager to know their rights and obligations under commercial leases as a result of COVID -19. At this stage, most interest is in regard to the payment of rent and outgoings. Below are some general comments for landlords and tenants to consider.
When will a Reduced Rent Apply?
The most recent versions of the Auckland District Law Society Deed of Lease state that a fair proportion of the rent and outgoings will cease to be payable in the event the tenant is prevented from having access to the premises in an emergency. COVID-19 falls within the definition of an emergency. Whether the tenant is operating an essential service may be relevant to whether they are prevented from having access to the premises.
So under this version of the lease, in an emergency situation, where the tenant is prevented from having access to the premises, a landlord will be obliged to reduce a tenant's rent and outgoings by a fair proportion. So how much is a fair proportion? This will depend on a number of factors and we suggest that advice is sought in this regard. Unless relevant guidance is issued to the contrary, a degree of negotiation between the parties may be required. We are happy to assist with those negotiations.
What if I have an older ADLS Lease or I don’t have an ADLS Lease?
Older form ADLS leases do not include the provisions relating to a reduction in rent and outgoings in emergency situations. There are also numerous other forms of a lease in circulation that do not have these terms.
In these situations, the position with regard to payment of rent and outgoings will be a matter for negotiation between the landlord and tenant. From a landlords perspective they may like to consider:
- Would it be advantageous to agree to rent and outgoing reductions in exchange for agreed variations to the term of the lease or other lease clauses?
- How easy will it be to remove a tenant and find a new one?
- What will the rental climate be like at the end of the COVID-19 situation? It is likely to be very different than before.
A tenant may have other legal arguments for non-payment of rent, especially while we are at Alert Level 4, but these are more complex and would have a higher threshold to meet.
Insurance and Government Subsidies
Tenants impacted by COVID -19 should contact their insurance brokers to see if their insurances cover losses resulting from the current business interruption. Landlords should enquire as to whether they are insured against loss of rent.
There will be many different scenarios that could arise in relation to insurance and different policies are likely to have different levels of cover. The insurance implications of COVID-19 may take some time to fully play out. We would suggest being aware of your insurance cover and obligations before finalising any arrangements between the landlord and tenant.
Landlords and tenants will be aware that there are also a variety of government subsidies in place. Details of these subsidies are available on various government and other websites.
Each case will be different so specific advise should be sought in relation to each lease.
Davenports Harbour Lawyers remains available to assist during the current situation. If you would like advice in relation to your rights and obligations under a commercial lease or any other commercial contracts please get in touch and we will be happy to help.