Although commercial leases in New Zealand make provision for foreseen emergencies, the unforeseen nature of the COVID-19 lockdowns went beyond the scope of those clauses. As a consequence, leases didn’t provide struggling parties with an avenue to remedy the problems they were facing.
In May 2020, the Government responded by amending the Property Law Act 2007. It extended the notice period before cancelling a lease because of overdue rent from 10 working days to 30 working days. The notice period a lender must give before taking possession of, or selling, a mortgaged property was also increased. These amendments are temporary and currently expire on 23 December 2020. While these changes allowed some scope for relief for businesses, they didn’t provide a platform for tenants of commercial leases to address the specific problems around access to their premises that the lockdowns had created.
Leases in New Zealand and states of emergency
Over the last decade, a declared state of emergency that has led to normal business operations being
halted has occurred around eight times throughout New Zealand due to earthquake, fire, or flooding. The longest was after the Christchurch 2011 earthquakes, when tenants were unable to access leased commercial property in the red zone over a 66-day declared state of emergency period. Leases in place at that time were inadequate to deal with this.
The Christchurch earthquakes led to the Auckland District Law Society (ADLS) commercial lease form being amended in 2012 to include clause 27.5: the no access in an emergency clause. Clause 27.5 provides that, where a tenant is:
…unable to gain access to the premises to fully conduct the tenant’s business from the premises for reasons of public safety... or the need to prevent, reduce or overcome any hazard, harm or loss that may be associated with the emergency … 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 to fully conduct the Tenant’s business from the premises until the inability ceases.
An ‘emergency' is defined in clause 47.1 as including an epidemic. For tenants with the 2012
The government subsidised arbitration and mediation service for commercial lease disputes due to COVID-19 restrictions
As all New Zealanders know, the lockdown periods necessitated by the COVID-19 crisis have had a considerable impact on the ability of businesses in New Zealand to continue to function. For most businesses, normal trade has been turned on its head. Many have struggled to meet day-to-day running costs, of which rental and outgoings due under commercial leases are often a major component. The flow-on of this is that many affected landlords also struggled to meet their financing obligations.
By Maria Cole
27 www.nzdrc.co.nz
ReSolution | Dec 2020