New COVID-19 response legislation has been passed which adds into applicable commercial leases a covenant allowing for rent and opex reduction during the COVID-19 pandemic. The reduction applies if the tenant (or any subtenant) is unable to gain access to all or any part of the premises to fully conduct their operations, because of reasons of health or safety related to the epidemic.
This new legislation is intended to provide a way for commercial tenants to negotiate rent and opex relief from their landlord where the lease does not otherwise give them a contractual ability to insist on this.
This new law does not apply to leases that already have a “no access in emergency” clause, such as in clause 27.5 of the Auckland District Law Society Deed of Lease form, which is New Zealand’s most common lease. There are also other exclusions to the application of this new law.
The reduction is to be implied into all leases from the date of the August lockdown (18 August 2021) and the application of this new law will end when the epidemic preparedness (COVID-19) notice 2020 expires or is revoked.
If the relevant lease qualifies for rent reduction then the landlord will need to agree a “fair proportion” abatement of the rent and opex for such period. If the parties cannot agree on what is a fair proportion, the dispute is to be referred to arbitration. Landlords cannot take any enforcement action due to non-payment of rent and opex during the affected period until the parties have reached agreement as to what is a fair proportion of rent and opex to reduce.
If you are a commercial landlord and need guidance as to whether your lease qualifies under this new legislation and how it should be interpreted and applied then we are happy to advise.
Similarly, if you are a tenant looking to secure a reduction in rent and opex payable for the affected period then we can advise you and assist with your negotiations.