Covid 19 coronavirus: Let's Talk Law: Rent obligations for non-essential businesses during lockdown

There's hope, depnding on the type of lease you have. Photo / file

Many "non-essential service" businesses are concerned over whether they are obliged to continue paying rent during the lockdown period despite being unable to operate and generate revenue.

The answer will largely depend on the type of commercial lease the business holds, the most common being the Auckland District Law Society's (ADLS) "standard form deed of lease".

Following the significant business interruption caused by the 2011/2012 Christchurch earthquakes, the ADLS introduced "No Access" provisions into its standard form of lease. The "No Access" provisions were designed to provide landlords and businesses with rules around the rent obligations during events such as Covid-19 pandemic and the current alert level 4 lockdown, where the business is not able to fully operate from the premises it leases.

In an emergency situation, the No Access provisions allow a business to cease paying a fair proportion of the rent and outgoings under its lease if it is unable to gain access to its premises to fully conduct business.

Naturally, if your lease contains No Access provisions, you need to know how and to what extent these provisions operate during lockdown. If your lease does not contain these provisions, you need to know whether there are any contractual or other remedies available to you during the lockdown.

The first key step is to determine whether your business provides an "essential service" during the lockdown period. The Government's list of which businesses are deemed to be providing "essential services" can be found at https://covid19.govt.nz/government-actions/covid-19-alert-level/essential-businesses.

Andrew Penn

If you are a non-essential business with No Access lease provisions, the lockdown will most likely trigger a rental abatement due to the business no longer having access to its premises to fully conduct business. As a result, such businesses will not be obliged to pay a "fair proportion of rent and outgoings" for the lockdown period. What figure constitutes a "fair proportion" will need to be assessed on a case-by-case basis - we think 50 per cent is likely to be a good starting point, however a number of factors will need to be taken into account to properly determine the correct figure.

It's worth noting that the business will still have the right to use the premises to store equipment that is necessary for the conduct of its business; and access may also be permissible for other reasons, such as collecting personal property required for health purposes.

If you are a non-essential business without the No Access lease provisions, there may be a remedy available to you if the lockdown continues for longer than the currently expected 4-week period or if the economic circumstances after the lockdown is lifted cause your business to become unviable (as we expect may be the case for some tourism-dependent businesses). In these situations, businesses may be able to terminate their lease arrangements due to the lease being incapable of being performed without fault of either party – this is known as a "frustrated contract".

The team at Treadwell Gordon are available to discuss any legal issues you or your business may be facing during the lockdown period and beyond. We can be contacted at 06 3490555 or go to our website www.treadwellgordon.co.nz

• Andrew Penn is a Principal Solicitor at Treadwell Gordon