Commercial Leases-The ongoing impact of COVID-19

Commercial Leases-The ongoing impact of COVID-19

While Alert Level 1 effectively sees a “return to normal” it is hardly business as usual for many small to medium size businesses that suffered significant financial loss during the lockdown period.

Most commercial tenants were able to negotiate some rent relief during the lockdown period, via the no access in emergency clause contained in their Lease, however once restrictions on access to premises was lifted there was no direct contractual or legislative basis for a tenant to seek extended rent relief. Alongside that, during the entire lockdown period, some tenants were operating under a Lease that did not contain a no access in emergency clause and have had no contractual ability to negotiate rent relief at all, until now.

On 4 June 2020 the Government announced an amendment to the Property Law Act 2007 that records an implied clause shall apply to every commercial lease which requires the parties to negotiate a fair reduction to rent and outgoings, by way of assistance to small and medium size businesses recovering from the financial impact of the COVID-19 lockdown.

The amendment, when finalised, is to provide further direction on the factors that should be considered when negotiating reduced rent but as with negotiations completed under the no access in emergency clause, consideration should be given to the financial position of both parties including, for example, what other financial support may be available to each party and any mortgage or lending obligations of each party.

The amendment will also provide for Government subsidised arbitration where the parties cannot reach agreement.

There are some qualifying factors for businesses to be able to apply this amendment to their situation. These are:

  1. The business must have 20 or less full-time staff per lease site;
  2. The business must be New Zealand based; and
  3. The business has not already come to an agreement for rent reduction with their landlord.

While more detail on the amendment to the Property Law Act is expected over the coming days, any agreements reached between parties will be retrospective and will apply from 4 June 2020 to a date six months after enactment of the Bill.

If you require further information or assistance, please do not hesitate to contact the team at Bramwell Bate and we will be happy to help.