As many businesses are forced to closed during stage 4 lockdown, and many sign makers deemed “non-esssential” it means many commercial buildings and offices are left inaccessible.
Did you know that when a premise is deemed inaccessible due to emergency, it is possible that you as the tenant may be able to negotiate rent?
The Auckland District Law Society standard deed of lease, which is the go-to contract for national corporate landlords has a crucial clause that was introduced in 2012 after the effect of the Christchurch earthquakes had on commercial tenants. However, keep in mind bespoke or outdated lease agreements (pre 2012 ADLS) may not include this clause.
Clause 27.5 states:
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.
The current epidemic we are facing is arguably supported under this clause.
As tenants unable to gain access to the premises to fully conduct business, 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. It is also important to know that clause 27.5 operates automatically, no notice from the tenant is required.
So, what does this mean for you as a tenant?
This means that rent may be negotiated. Keeping in mind the outcome should determine a fair proportion. Under the current circumstances, generally a 50/50 share of the rental could be a starting point and negotiating from there.
Remember it’s going to be landlords’ best interest to look after the tenant because undoubtedly under the circumstances, there will be businesses that fail without help, and with that, landlords are facing the prospect of empty premises.
Even if your lease agreement is pre 2012 or is bespoke, it does not mean that there isn’t an argument that can be made. It is highly arguable that the pandemic with Covid-19 is an occasion that has frustrated many contracts, and obligations of the contract cannot be fulfilled. It would be best to seek legal advice in regard to this.
At a time like this it is important tenants and landlords work together for an agreeable and viable outcome.
