Commercial Landlords and Tenants – Payment of Rent and Expenses during Covid-19 Alert Levels 4 and 3

Following the latest Covid-19 outbreak and the reintroduction of alert levels, many commercial tenants have been prevented from accessing their business premises. As Auckland remains at Alert Level 4 and the rest of the country breathes to return to Alert Level (Delta) 2 from 11.59pm tonight, landlords and tenants are reviewing their leases to determine their rights. and obligations relating to the payment of rent and expenses during this period.

Leases generally include a “no-access” clause, whereby rent and expenses decrease during periods when access to the premises is not permitted. At Alert Level 4, the “no emergency access” provisions in the Auckland District Law Society’s widely used lease deed form (the ADLS Lease, clauses 27.5 and 27.6), are likely to be triggered. The ADLS lease generally provides that in an emergency, if the tenant is unable to access their premises for reasons of public safety, or the need to prevent or reduce the damage that may be associated with emergency, including a restriction on the occupancy of the premises by any competent authority (i.e. alert level 4), the tenant may stop paying a fair proportion of the rent and expenses for that period . During the last foreclosure in 2020, what is a “fair proportion of rent and expenses” for the purposes of the ADLS lease was a hotly debated topic among landlords and tenants. What was an “equitable proportion” was not defined and had to be assessed in light of the specific circumstances.

During the last confinement, whether or not the lease concerned contains a non-access clause, in many situations, owners and tenants were able to work together to decide on the reduction in rent and charges to be applied. For an ADLS lease, it was a question of determining what the “right proportion of rent and expenses” looked like. In other cases, it may have been difficult for the parties to reach an agreement. For this containment, we generally expect that all the arrangements agreed to last year will be a good starting point for discussions this time around. When the circumstances or the positions of the parties have changed, this may not be possible.

In our experience, landlords often wish to work constructively with tenants to discuss possible rent relief, rather than requiring the tenant to pay full rent when they are not able. to do so, and face costly enforcement actions and possible tenant default. Tenants are also often keen to proactively engage with their landlords to discuss available options, before ceasing or reducing payment of any rent. In most cases, the most practical way to move forward is usually early engagement with the other party, to assess options that are within each party’s means.

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