ARE YOU A LANDLORD OR TENANT?
March 26, 2020
Following on from our communication yesterday we wanted to give you our views on the recent articles in the Herald and on Stuff regarding rent payments during this shutdown period. We are referring to commercial rentals, rather than residential.
If the lease agreement for the property is on the standard Auckland District Law Society lease and the lease was entered into after the Christchurch earthquakes, then there is a clause that provides for a negotiation between tenants and landlords for an adjusted rental amount during a shutdown period. The clause is 27.5.
Our interpretation of clause 27.5 does not necessarily mean a total stop of payments for rent and outgoings. The clause actually says, “a fair proportion of the rent and the 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”. Our understanding is that this is not a 100% stop of payments, but should be a negotiated payment between tenant and landlord. We would approach this with a long term view in mind. That is, if you are the landlord, you want to have a tenant in your building and it may be better to have the same tenant in your building long term, with a reduced rental now, rather than having an empty building. If you are the tenant, then paying some rent now and having a premise that is all set up with your furniture, goods, etc when you are able to move back in and recommence business, is better than having to find somewhere else to go and shift when you recommence and all you want to do is get trading and have income flowing again.
From discussions with clients, it seems that there have been many different arrangements made depending on the individual circumstances.
Section 27.6 of the standard Auckland District Law Society lease also allows for cancellation of the lease in these shutout circumstances. It refers to the length of time that the tenant is unable to access the premises. Many of these seem to be 9 months. You should refer to your individual lease to see what this period is. Of course we will not know how long the shutdown is, until it is over.
We recommend that you talk to your tenant or landlord in the first instance. If you intend to enact either of these clauses, you should seek legal advice in absence of agreement. Please let us know if you need a contact for legal advice. Alternatively, please do not hesitate to contact your Greenlion representative should you wish to discuss things.