Negotiate your rent during the Covid-19 Alert level 4 lockdown

The current situation is negatively affecting cash flow and potentially the solvency for many tenants. Having a discussion with your landlord is recommended. Options may include:

1.      Eliminating rent during Alert level 4 through rent relief.

2.      A rent free period for part of the period at Alert level 4.

3.      Delaying rent during Alert level 4 through a rent holiday or rent deferral (which will require payment at a later date).

4.      Reducing rent through a rent reduction during Alert level 4.

Remember that a landlord is unlikely to want a tenant in default during the category 4 lock down and a default is likely to be in neither parties’ interests. Don’t be afraid to ask.

The ADLS lease

The standard ADLS (Auckland District Law Society) lease has since 2012 had clause 27.5 “No access in emergency”. Check your lease carefully for the clause.

The clause notes that it there is an emergency and the Tenant is unable to gain access to the premises to fully conduct the Tenant’s business, then a fair portion of the rent and outgoings shall cease to be payable for the period commencing on the date the tenant became unable to gain access to the premises.

The definition of an emergency includes a plague or epidemic.

Therefore, tenants with ADLS contracts with clause 27.5 “No access in emergency” don’t have to pay all their rent if they can’t run their businesses because they cannot access their premises due to the Covid-19 Alert level 4 lock down.

In Zheng Li Trustee Ltd v Henderson [2015] NZHC 1723 there was a “Partial Destruction” clause in a lease that provided that if the premises were damaged, but not so as to render the premises untenantable, then “Until the completion of the repairs or reinstatement a fair proportion of the rent and outgoings shall cease to be payable as from the date of damage.” The Court found that a “fair proportion” should be assessed as the equivalent of two months' rent payable under the lease.

What is a fair proportion?

If your premises hold your desk and chair, but little else, then the rent reduction might be higher than if the premises is still used as it holds your servers for remote access, stock or other materials.

Options to quantify a fair proportion include:

1.      Negotiating direct with your landlord.

2.      Engaging a valuer for a desktop review of what a fair proportion may be.

3.      A declaratory judgment, but this is expensive as it involves an application to the court and may not be heard until after Alert level 4 restrictions lift.

If you have clause 27.5 in your lease or want to negotiate with your landlord do not hesitate to contact Callum for a free consult on 02040625620.