Covid-19 – Commercial Leases

As New Zealand prepares for lockdown, commercial landlords and tenants will be wondering what rights they have if the tenant’s business is forced to close.

The most commonly used form of commercial lease in New Zealand is the Auckland District Law Society (ADLS) lease. Following the 2011 Christchurch earthquakes, the ADLS introduced a sixth edition of this lease containing new provisions relating to emergencies.

If your commercial lease is recorded on the ADLS form of lease, you can check the edition by referring to the top right-hand corner of the lease document. If your lease is recorded on the ‘Sixth Edition 2012’, it will state that in the event of an emergency (which includes, in its definition ‘…plague, epidemic…’) meaning that ‘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 … restriction on occupation of the premises by any competent authority’ (like we now find ourselves, as a result of the current lockdown), the landlord and tenant are placed in a position whereby they must reconsider the quantum of rent and outgoings payable by the tenant.

Where there has been such an emergency (which we would now consider the COVID-19 situation to be, given that the Government has announced a level 4 alert), the lease states that ‘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 … until the inability ceases.’

At a minimum, we would suggest that this clause applies during the Government’s prescribed alert levels 3 and 4. The ADLS lease form gives no guidance as to what constitutes a ‘fair proportion’. Therefore, landlords and tenants bound by a sixth edition ADLS lease would need to negotiate reduced rent and outgoings payments in good faith, giving due regard to the circumstances.

For commercial leases on ADLS forms recorded in the fifth edition or earlier, no assistance of the sort described above is likely to be available, as it is not included as a standard term on those forms. Landlords with these leases in place would be quite within their rights to refuse any assistance.

If your lease is recorded on the sixth edition of the ADLS form, it will also contain provisions for a period of time called the ‘no access period’. If, following the expiry of this period, the tenant is still unable to operate its business from the premises as a result of the emergency, either party may terminate the lease by giving 10 working days’ notice. If a tenant’s business has now been forced to close as a result of the level 4 lockdown, the ‘no access period’ has commenced.

Note: This article applies to commercial leases only, not residential tenancies.

If you would like legal advice in relation to COVID-19, please get in touch with Andrew or contact reception.

Andrew Reeder
P/ 09 489 9102
E/ andrew@armstrongmurray.co.nz

Andrew’s work primarily focuses on Commercial and Company Law and Commercial Leasing. Andrew’s clients appreciate his keen interest in assisting them with the unique issues involved in running a family-owned business, commercial structuring and aligned advice.

Andrew worked part time with Armstrong Murray while studying and returned to the firm in mid-2011, after three years working for a large national firm. As a third-generation Takapuna Grammar boy, Andrew enjoys the close links the firm has to the local North Shore community.

Andrew was appointed as a partner at Armstrong Murray in 2019.

Note: This post is brief and general in nature. You should not treat it as legal advice and should seek professional advice before taking any action in relation to the matters dealt with in this post. Armstrong Murray accepts no liability for losses suffered by any person or organisation who may rely directly or indirectly on this post.