With the ongoing Covid-19 pandemic changing the way many of us have been able to use our traditional working spaces, the government has proposed to step in and provide an avenue for agreement on rent relief between commercial landlords and their tenants where the tenant is not able to access its premises due to Covid-19.
The government has agreed to an amendment to the Property Law Act 2007 which will imply a "no access in an epidemic" clause into all existing leases and licences that do not already contain an equivalent "no access in an emergency clause". When this passes into law, it will have retrospective effect from 28 September 2021.
How will it work?
The implied no access clause is intended to operate in a similar manner as the existing provision at clause 27.5 of the commonly used Auckland District Law Society Deed of Lease - Sixth Edition 2012(5), however with specific application to epidemics. The implied no access clause will apply in circumstances where:
There is an epidemic (as defined within the Epidemic Preparedness Act 2006); and
The tenant is unable to gain access to all or any part of the leased premises to fully conduct their operations, because of reasons of health or safety;
However, the implied no access clause will only be implied into leases where:
The lease does not already contain a "no access in an emergency" clause that addresses epidemic situations; and
The parties have not otherwise agreed to a general arrangement for rent abatement that applies when access to the premises is restricted due to an epidemic.
The upcoming amendment to the Property Law Act requires the landlord and tenant to agree to a 'fair proportion' of the rent (and outgoings) that will not be payable during the period of limited or no access. The upcoming amendment does not provide guidance on what a 'fair proportion' of rent is considered to be. Any agreement for rent abatement you may have reached for the current lockdown and the extent of the tenant's loss of income will be an important starting point in determining what a 'fair proportion' of rent may be. If agreement cannot be reached then either party may refer the matter to arbitration.
Will this impact me?
Landlords and tenants will first need to consider whether the upcoming changes will affect them. If you have an existing no access in emergency clause in your lease or you have reached a separate agreement that will apply to all lockdowns then the upcoming law change is unlikely to have any impact on you. If you don't have either of these then the change may still affect you even if you have reached an arrangement for the current lockdown. Landlords may also want to consider addressing this question in any fresh leases that they enter into, either by providing for a specific abatement percentage within the lease, or simply by excluding the implied term altogether.
The upcoming implied no access clauses will only be in place for the duration of the Epidemic Preparedness (COVID-19) Notice 2020, however it is something that will need to be considered by both those landlords and tenants without "no access in an emergency" clauses in their leases, and those who may be entering into new leases in the near future.
If you are unsure about what your rights or obligations are in relation to these changes, or whether you will need to account for this in any future leases, please don't hesitate to contact our team for assistance.