11 March 2022
Following the Christchurch earthquake in 2011, tenants who were unable to access
undamaged red zone buildings in the CBD could not receive rent relief. This led to an update
of the Auckland District Law Society Deed of Lease (ADLS Sixth Edition 2012) which many
commercial tenants and landlords use.
A new clause in the ADLS lease (clause 27.5) allows for a fair proportion of rent and outgoings
to cease being payable when a tenant is unable to access their premises or fully conduct their
business in the event of an emergency. The rent abatement ceases when the inability to
access the premises is lifted. These clauses are known as a “no access in emergency” clauses.
“COVID-19 lockdowns in 2020 brought these “no access” clauses back into the
spotlight. During Alert Level 4 lockdowns tenants could no longer conduct their non-essential
businesses due to the Government mandated lockdown. This meant where leases contained
a “no access” clause, landlords and tenants needed to agree to an adjusted rental.”
When do “no access” clauses apply?
Clause 27.5 of the ADLS lease sets out the “no access” clause which can be reduced into three parts.
Firstly, a “no access” clause applies when there is an emergency. This includes natural disasters as well as civil emergencies. The COVID-19 epidemic has been considered an emergency in terms of “no access” clauses as government directives effectively created a “nationwide red zone” by imposing operating restrictions on businesses meaning that they had to cease operating in Alert Level 4 to reduce the spread of the virus.
The other two key parts of clause 27.5 are:
- that there must be an inability to access the premises or operate fully from them during an emergency, and
- how (or if) “no access” clauses apply to a specific lease will depend on the wording of the lease in question as leases often vary from one tenancy to the next. However, recent Government changes (discussed below) have implied “no access” clauses to certain commercial leases while the COVID-19 epidemic continues.
Implied “no access” clauses.
“No access” clauses only benefit tenants who have signed the new form of ADLS lease. Many leases run for long periods of time particularly where a lease contains rights of renewal. Tenants who have signed older lease documents may be left without the protection of a “no access” clause. However, changes to the Property Law Act 2007 pursuant to the COVID-19 Response (Management Measures) Legislation Act 2021 have introduced an implied “no access” clause into certain commercial leases.
Leases that were operational on and after 18 August 2021 will have an implied “no access” clause read into them. This includes leases entered into before but continue to operate on and after 18 August 2021.
An implied “no access” clause will be read into commercial leases that do not already contain a “no access” clause that covers epidemics or when there has been no agreement between a landlord and tenant regarding any reduction in rent during an epidemic. If a lease already contains an appropriate clause then the Act does not apply.
For Sixth Edition ADLS leases negotiated before 18 August 2021 which struck out clause 27.5 or a similar “no access” in emergency clause, s 4A of the Property Law Act ensures that the “no access” clause still applies. Any parties wanting to exclude the (now implied) “no access” clause will have to (again) expressly exclude the implied clause for it not to have effect.
The implied “no access” clause ends when the Epidemic Preparedness (COVID-19) Notice 2020 is revoked or expires.
What is a “fair proportion” of rent?
The wording of a “fair proportion” of rent was taken from clause 27.3 of the ADLS lease, which deals with rent abatement when there has been damage or destruction to premises. The ADLS lease does not define what constitutes a fair proportion of rent and outgoings. There is no clear determination of what ceases to be payable under a “no access” clause, and the courts have not made any decision as to what a fair proportion may be. It is up to the parties of the lease to determine what a fair proportion is and how much may still be payable under the lease in times of no access in an emergency.
The rationale behind “no access” clauses is that if the tenant cannot physically gain access to the property and carry out their business, they should not have to pay 100% of the rent. However, considerations may need to be given to what is being kept in the tenanted premises, such as computer servers that tenants can use remotely as they carry out their business operations by alternative means, for example when working from home. The fact that a tenant may still receive some benefit from the tenancy despite not having access should be considered.
Other considerations of what a fair proportion of rent and outgoing is may include the financial position of the landlord and tenant, such as the impact on the business due to COVID 19 restrictions, mortgage obligations, and any financial support available to the parties.
If an agreement cannot be reached, the parties will need to refer the matter for formal dispute resolution.
If you have any questions or concerns, please feel free to contact our Team at Fletcher Vautier Moore Lawyers on (03) 548 1469.
This article does not constitute legal advice, and Fletcher Vautier Moore Lawyers accepts no responsibility for reliance on the content of this article. Please contact Fletcher Vautier Moore Lawyers if you have any questions about how this article applies to you.
Written by Claudia Hillman.
