As part of the Covid-19 Response Legislation Bill recently introduced to Parliament, the Government has proposed adding a new clause to commercial leases which will encourage landlords and businesses to share the financial burden of any future Covid-19 restrictions.
Under the proposed changes, an amendment would be made to the Property Law Act (2007). This amendment would require that whenever a tenant has been unable to fully conduct their business in their premises due to pandemic related restrictions, landlords and tenants negotiate a “fair proportion” of rent to be paid. In essence, the changes would require landlords and tenants to negotiate a rent reduction in the case of any future lockdowns.
The amendment does not specify what a “fair proportion” would be, however leases which already had provisions for adjusted rent payments in the case of restrictions would not be affected. This includes any leases on the current ADLS (Auckland District Law Society Commercial Lease) which includes a specific clause relating to no access in emergency (clause 27.5).
The reductions in rent amounts would require both parties’ agreement, and landlords and tenants could agree that no reduction was required or that the clause did not apply to their situation. However, if landlords and tenants were not able to come to an agreement then they would be required to attend arbitration, unless they agreed to attend an alternative dispute resolution process, such as mediation.
While many landlords and businesses already negotiated rent reductions in the case of previous lockdowns, the changes were intended to help businesses whose landlords had been less willing to negotiate. “We have heard the concerns from business operators unable to meet full rental costs while their incomes have been hit by Covid restrictions” Minister Kris Faafoi said, “This change helps to ensure that landlords and tenants come to reasonable agreements about rent obligations, while still respecting agreements that have already been made. Agreements need to reflect the uniqueness of the current Covid-19 situation, and provide the means by which both landlords and tenants can share the financial burden of the impact of Covid-19 restrictions.”
Once the proposed changes had been passed the law would retroactively take effect from 28 September 2021.
If you're a tenant or a landlord and want to know how the changes will affect you, call the team at Godfreys Law on (03) 366 7469.