What are your rights under the COVID-19 lockdown?
During the COVID-19 Alert Level 4 lockdown, the majority of businesses are unable to operate normally from their leased premises. So what rights do commercial tenants have? First and foremost it depends on the terms of your lease. The most common form of commercial lease is the Auckland District Law Society (ADLS) Deed of Lease.
During this time, tenants and landlords should be working closely together to help each other and ensure they both come out the other side of this pandemic, commercially viable. If matters are handled with respect, the commercial relationship can continue with no issues once the national lockdown is lifted. Due to the pandemic triggering a worldwide recession, landlords are likely to struggle finding replacement tenants if they harm their current tenant/landlord relationships.
No Access in Emergency
The Christchurch earthquakes experience led to special provisions being added to deal with situations, such as the COVID-19 lockdown, where tenants cannot access their premises due to matters out of their control. The problem for many tenants, is that they are operating under older versions of the lease, which don’t have these clauses. Tenants and landlords will need to check their leases to see what was agreed to.
Unless your business is considered essential, it’s likely you may not have access to your place of business, or at the very least, cannot fully conduct your duties. If this is the case, then a fair proportion of the rent and outgoings (such as the rates, insurance, and building maintenance as agreed in the lease) will not be payable while the premises are inaccessible during the lockdown.
What proportion of the rent and outgoings is fair for the tenant to pay during the lockdown may depend on the individual circumstances of the landlord and tenant, and will most likely need to be negotiated between them. We have experienced several negotiations since the lockdown began, with the abatement ranging from 50% to 100%.
Some commercial landlords will see the outbreak as a tenant’s business risk separate from the lease, meaning the status quo wouldn’t change. If they won’t agree to a reduction, the tenant will need to arbitrate the matter.
Ending The Lease Agreement
The current edition ADLS lease includes a specified ‘No Access Period’ which is typically 9 months. If the premises have been inaccessible for longer than this time, either the landlord or the tenant may end the lease by giving 10 working days written notice to the other. Some leases have shorter No Access Periods in them, but it is highly unlikely that the COVID-19 lockdown period will extend as far as being entitled to ending the lease this way.
Without provisions such as these, the tenant must continue to pay rent and outgoings. This is quite different from where the premises are destroyed or damaged by natural disasters such as earthquakes. In those cases, rent abatement and cancellation rights are implied by the law.
The government’s freeze on rent increases for residential tenancies for six months does not apply to commercial tenancies. We suggest you discuss these matters with your landlord in order to come to an agreement around what’s fair during this challenging time. If you do come to an agreement, remember to have it documented in writing to avoid future disagreements.
For more information from legal experts you can trust, call Carlile Dowling at 06 835 7394 or email us at mailbox@cardow.co.nz
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