The COVID 19 pandemic brings uncertainty not just to the public, but especially to business owners.

As at the date of writing this article, the government issued a level 3 alert, rising to level 4. We are about to be isolated and offices and other commercial buildings left inaccessible.

For business owners, this means among other things that all non-essential businesses must close. During this time, businesses will not have access to the premises. However, does this mean that it must pay for the time where there is no access?

If the lease is on the standard deed of lease from the Auckland District Law Society, then there may be reprieve.

Clause 27.5 provides that:

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:

(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.

Clause 47.1(d) defines an “emergency” to mean a situation that:

(a) Is a result of any event, whether natural or otherwise, including an … epidemic; 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.

In the present circumstances, it is highly arguable that there is an emergency as there is an epidemic. This is supported by the fact that an epidemic notice was issued under section 5 of the Epidemic Preparedness Act 2006. Further, the epidemic may cause loss of life and the event is not caused by any act or omission of the landlord or tenant.

Assuming that there is an emergency and the tenant is unable to gain access to the premises to fully conduct its business, then clause 27.5 states that the tenant would not be liable for a proportion of rent and outgoings from when the tenant became unable to gain access until that inability ceases.

Clause 27.6 provides a further option by giving either party the choice of terminating the lease by giving 10 working days written notice to the other if:

The tenant is unable to gain access to the premises for the period specified in the schedule; or

The party that terminates the lease can at any time prior to termination establish with reasonable certainty that the tenant is unable to gain access to the premises for that period.

Accordingly, depending on the period contained in the schedules, the tenant might also be able to terminate the lease.

What does this mean to tenants and landlords? It appears that the purpose of clauses 27.5 and 27.6 is to shift the burden of the cost of emergencies to the landlord. It is important to note that the operation of clause 27.5 does not require notice from the tenant. It means that clause 27.5 operates automatically and it would be highly arguable for tenants to rely on this clause for proportional rent and outgoings.

For landlords, this means that you need to anticipate for this potential outcome and make provision for less rental income.

We highly recommend that tenants and landlords work collaboratively during this period to ensure they both come out of stage 4 lockdown commercially viable. In many cases, the commercial relationship can continue once the dust settles as the reality for most landlords is they are likely to experience difficulty in finding replacement tenants during this time.

For more information, feel free to contact the legal experts at Norling Law for a free 30-minute no-obligation consultation which can be booked here.

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For more information, feel free to contact the legal experts at Norling Law for a free 30-minute no-obligation consultation which can be booked here.