These are difficult and uncertain times for New Zealand business owners and landlords. Many businesses have been excluded from entering their premises during the governments Covid-19 Level 4 lockdown. Some essential businesses can still access their place of work, but even then there will be restrictions as to who can come to work (many employees be working from home). Even if we drop to Level 3, anyone who can work from home will be expected to do so.

Most New Zealand businesses are not surprisingly looking at saving costs and lease costs will be one of the areas they are looking at.

It is important that both parties understand their right and obligations under their lease. What options are available to both parties? In many cases neither party may be aware of the “fine print” in their lease or what it means. We can help with that! We can also help negotiating a fair outcome for both landlords and their tenants.

Below are some of the most commons questions we are being asked, and some general information about what help might be available for both landlords and tenants.

LANDLORDS: Many commercial landlords will have been approached by their tenants seeking assistance during the Level 4 lockdown.

Things you need to know:

• What are your obligations under the lease if your tenant asks for rent relief?
• What happens if the tenant cant (or wont) pay the rent or outgoings?
• Is there any relief available for landlords when the rent is not being paid?
• What happen if your tenant’s business fails, and when can you call on a guarantor?

TENANTS: What can you do if you need help with your rent?

Things you need to know:

• What happens if you can’t access the property because of the lockdown? Can you stop paying all, or part of, your rent and outgoings?
• What happens if some of your staff can go to work and some cannot?
• What are your obligations under the lease if your business fails?
• What happens if you have given a personal guarantee?
• What relief is available from your bank or the government?

LANDLORDS AND TENANTS

RENTAL PAYMENTS:
Landlords and Tenants need to review their own lease agreements as soon as possible. Does your lease provide for relief under the COIVD-19 lockdown? If you are using the latest version of the Auckland District Law Society Deed of Lease (which is the most common form of lease used in New Zealand), it includes a “no access in emergency clause” (clause 27.5) which could be triggered by the level 4 lockdown. The clause provides for “a fair proportion of rent and outgoings” to be reduced for the period where a tenant cannot access the premises.  This clause is yet to be tested and no doubt there will be some robust debate around what it means and does it apply during the Level 4 lockdown.

If it does apply how will parties agree on what is a “fair proportion of rent and outgoings”? A tenant might argue for a 100% reduction because they can’t access the premises, where a landlord might argue that the tenant remains in occupation of the property and 100% of the rent is payable. What is a fair outcome?

Our advice is for landlords and tenants is to understand what their lease says and to start talking early. If you need help we can assist you. Each case will be different. We can advise you on your specific lease*, and help you with any negotiations. Reaching agreement may well be better for both parties in the long term (the alternative might the tenant’s business failing and them being unable to pay any rent). Enforcement can be costly and time consuming. There may be a guarantor and you may be able to call on that guarantor to pay any outstanding rent. However, in many cases the guarantor’s personal assets might have already been exhausted by trying to keep the business going, or their bank may hold “first ranking” security over the guarantor’s assets.

*Please note that there are many different forms of lease in New Zealand. Each have their own terms and conditions (one size does not fit all), and not all have a “no access in emergency clause”. We would recommend that you talk to us and get legal advice before you take any steps under your lease.

There are a number of other remedies available to landlords under leases. Tenants (and guarantors) should be careful before a decision is made to stop paying the rent.

INSURANCE
Most insurance companies have notified policy holders that the COIVD-19 outbreak is excluded from their business interruption cover. Our advice is to talk to your insurance company, and if necessary make a claim (you might be required to make a claim if you are claiming the wage subsidy).

FINANCIAL ASSISTANCE
At the time of writing this article there was no specific target rent relief under commercial leases. The Government business relief packages can potentially provide help for both parties (for example if a tenant receives the wage subsidy this might free up some money for other expenses such as rent).

There are a number of other forms of assistance being provided and we encourage you to talk to your accountant regarding taxation relief for businesses. Perhaps the most significant example for landlords is allowing depreciation to be claimed on commercial building. This link provides current information for available business support: https://www.business.govt.nz/covid-19/business-finance-support-and-mortgage-holidays/

We would also encourage you to talk to your bank about your options and what they can offer as soon as possible

SUMMARY:
This is stressful time for landlords and tenants. If a tenant cannot pay the rent, the landlord’s obligation to pay their mortgage, rates and insurance payments do not stop. For tenants, getting some relief from paying some of their rent could be the difference between their business surviving or not.

Understand your lease (your rights and obligations).

Talk to us, your accountant, your bank and IRD. Get all the help you can.

Landlords and tenants need to start talking to each other early.

Find out what assistance is available to you from your bank or under the government business support package.

Need a bit of legal assistance? Contact a Corelegal team member today and learn more about our legal services. You won’t regret it.

Aside from family law, we are commercial lawyers Wellington who offer legal services to help you.

You can click here to speak to a commercial lawyer and family law firm. We will give you a call to know more about your needs. We will explain to you how we can improve your affairs.

Lawyer Masterton | Commercial Lawyer Wellington | Asset Planning Lawyer | Wellington Property Lawyer | Wellington Relationship | Property Lawyer

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