Commercial Leases

Almost all of our clients who are a landlord or a tenant of a commercial property use the Auckland District Law Society “ADLS” Lease.

For those of you whose lease is on the 2012 format clause 27.5 of that lease provides for the right for a tenant to seek a reduction by a “fair proportion” of the rent and outgoings. There is deliberately no definition for what is a fair proportion because that will depend on the circumstances. There has been no case law to provide guidance on the interpretation of this clause in these circumstances for obvious reasons. What is largely agreed by most lawyers and commentators is:

  1. that clause 27.5 can apply in the current Covid-19 Level 4 Lockdown (there are interpretations which are not tested on issues like whether the tenant is an essential service or not and whether a tenant truly cannot “access” their premises);
  2. the landlord and tenant need to agree what is a fair proportion, neither party can impose their will on the other;
  3. if the parties cannot agree the dispute resolution provisions of the lease can be used;
  4. it is in the interests of the parties to try and agree a fair solution to both since in most circumstances the relationship is likely to continue. The landlord wants a tenant and usually the tenant will want premises to operate their business from when they are able to resume in some manner as we come to grips with Covid-19.

The government has announced some intended changes to the Property Law Act (which will act retrospectively) to give tenants some limited relief by extending a landlords right to terminate for non payment of rent out to 30 working days (from 10). Likewise to give landlords some relief they are extending the notice period for a mortgagee to issue a notice they intend to sell a property for breach of the mortgage from 20 working days to 40 working days. The idea is to give the affected parties more time, presumably the tenant to get back operating again and/or to make some arrangements with their landlord and then property owners with their bank.

We are hearing both good and bad stories from our clients. Some good include a local landlord which has offered a blanket 50% reduction of rent to all its commercial tenants. Other instances where the parties have worked together to agree short term reductions. This is how clause 27.5 of the 2012 ADLS lease it is meant to work.  We have had other less generous stories with both landlords being inflexible and tenants simply dictating a reduction even where their leases do not give them any entitlement.

Even if your lease is older and does not include any right for a tenant to seek a rent reduction the NZ Law Society and the government are encouraging Landlords and Tenants to work together to reach a compromise fair to both parties.

For more information visit the Ministry of Justice website.

If you have any queries please contact Simon Wilton phone 0274 529 467.