In these unprecedented times where most businesses are either shutdown or forced to work remotely, does a tenant have to continue to pay rent and outgoings to the landlord for the premises that are leased?
Some clarity can be found in the Sixth Edition 2012 (5) of the standard Deed of Lease prepared by the Auckland District Law Society (“ADLS Lease”).
In the wake of the Christchurch earthquake many businesses/tenants were prohibited from entering their premises due to safety concerns regarding the stability of the building. This created a unique situation where tenants were still liable to pay rent and outgoings on an ongoing basis but were barred from entering the premises due to government restrictions. This created added strain to employers who were required to also look after employees during this crisis. The ADLS Deed of Lease at the time only provided relief to tenants whose premises were either partly or completely destroyed, however buildings that were largely undamaged but still considered unsafe by the government, were left with little to no relief.
In response to these issues the Law Society underwent a review of the standard Deed of Lease and included new provisions to address these issues.
27.5 “If there is an emergency and 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 or overcome any hazard, harm or loss that may be associated with the emergency including:
a) A prohibited or restricted access cordon applying to the premises; or
b) Prohibition on the use of the premises pending the completion of structural engineering or other reports and appropriate certifications required by any competent authority that the premises are fit for use; or
c) Restriction on occupation of the premises by any competent authority.
Then 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.
“emergency” is defined as the follows (under clause 47.1(d) of the ADLS Lease):
a) Is a result of any event, whether natural or otherwise, including an explosion, earthquake, eruption, tsunami, land movement, flood, storm, tornado, cyclone, serious fire, leakage or spillage of any dangerous gas or substance, infestation, plague, epidemic, failure of or disruption to emergency service; and
b) Causes or may cause loss of life or serious injury, illness or in any way seriously endangers the safety of the public or property; and
c) The event is not caused by any act or omission of the landlord or tenant.
Clause 27.6 of the ADLS Lease also provides the ability to cancel the lease (any termination using this clause is without prejudice to the rights of either party against the other) if the above clause applies and the property has not been partially or completely destroyed as per clauses 27.1 -27.4 of the ADLS Lease, then either party may cancel the lease by giving 10 working days written notice if:
a) The Tenant is unable to gain access to the premises of the period specified in the First Schedule; or
b) The Party that terminates this lease can at any prior to the termination establish with reasonable certainty that the Tenant is unable to gain access to the premises for that period. “
The current COVID-19 Alert Level 4 instituted by the Government should result in the activation of these clauses. It is important to contact your landlord as soon as possible to discuss the above and what should be considered a fair proportion of rent and outgoing in terms of clause 27.5 noted above.
Lastly, it is important to note that there are various versions of the Auckland District Law Society Lease and some Landlord’s also prepare their own lease. Therefore, you should undergo a careful review of your current lease to see if there is any relief provided for. In any case, you should contact your landlord to discuss how to treat rent and outgoings regardless if any of the above clauses are included in your lease.
Please note this is general information and you should contact us for legal advice for your specific circumstances.