Under Alert Level 4, many tenants will be unable to run their businesses from their commercial premises. Some offices may be able to partially or fully function from home. Others, like non-essential retail, will not be able to operate at all.
We set out here some general information for landlords and from questions we have been asked. Every lease is different, and a nationwide “lockdown” is new territory, so we implore you to engage a lawyer. Contact us for a recommendation.
Q: During the lockdown are tenants required to pay rent & outgoings on the premises?
A: Short answer is it will depend on the terms of the lease. Lease documents in New Zealand differ. A tenant will be required to continue to pay rent and outgoings unless the terms of the lease provide otherwise, or they reach an agreement with the landlord. We recommend that landlords and tenants seek legal advice on the specific terms of their lease.
Q: Didn’t we have the same situation with the Canterbury Earthquakes?
A: Following the Canterbury earthquakes, the common ADLS Deed of Lease was updated to include clauses which consider an “emergency” which results in the tenant being unable to gain access to their premises to fully conduct their business. Tenants may be eligible to claim a reduction of a “fair proportion” of the rent and outgoings payable under the lease. What is “fair” will differ in each case. Landlords and tenants will need to review any agreed rent abatement as the Alert Level changes.
Q: What do I do next?
A: Talk to each other. Discuss your options with honesty and empathy.
- Seek advice on the terms of the lease and fully understand what other support may be available.
- Talk to your banks.
- Don’t act hastily to agree rent reductions.
- Working together with an agreement on a weekly or monthly basis and ensure any agreement can be reviewed as and when the alert levels change.
- To avoid disputes, by clearly documenting any agreement reached.
Q: What other support may be available?
A: The Government has announced financial support measures, including:
- A wage subsidy entitlement scheme.
- Changes to provisional tax for small businesses.
- Depreciation deductions for commercial and industrial buildings.
- Banks offering a six-month principal and interest payment holiday for mortgage holders and SME customers whose incomes have been affected by COVID-19.
- Business Finance Guarantee Scheme for small and medium-sized businesses to provide short-term bank credit for solvent small and medium-sized firms affected by COVID-19.
More announcements are expected on other measures in the weeks and months ahead.
The Team at PKF Goldsmith Fox
Disclaimer: the content of this article is general in nature and not intended as a substitute for specific professional advice on any matter and should not be relied upon for that purpose.