The Government has indicated that face-to-face interactions will be prohibited and services will need to be delivered with contactless payments and delivery. Where possible everyone who can is required to work remotely and all non-essential business premises will not be permitted to open to the public. While the Government has not yet released the proposed Order that will give effect to Alert Level 3, with the precise details and restrictions, it has released a guidance note here and a more detailed Q&A here.
In this note we examine the implications of the move from Alert Level 4 to Alert Level 3 for landlords and tenants of commercial leases.
Alert Level 4 required all premises to be closed unless they were premises connected to essential services. The move to Alert Level 3 will permit more businesses to operate in some way from their premises but certainly for most, it will not be business as usual. Assuming the Government’s orders will reflect its current guidance note and Q&A (both linked above), for many businesses that do re-open, they will not be able to fully conduct their businesses and make use of all of their premises.
In our previous note we drew your attention to clause 27.5 of the ADLS lease (6th edition, 2012 version or later), which provides tenants with relief from paying a fair proportion of rent and outgoings in circumstances where premises cannot be accessed following an emergency.
Before this clause can apply:
In these circumstances, a fair proportion of the rent and outgoings will cease to be payable from the date on which the tenant was unable to gain access to the premises to fully conduct the tenant’s business from the premises until the inability ceases.
As we move from Alert Level 4 to Alert Level 3, landlords and tenants will need to consider whether clause 27.5 continues to apply. The precise terms of any Orders which give effect to Alert Level 3 will be important in assessing the extent to which businesses or premises are mandated to close or are restricted and therefore whether clause 27.5 will apply. Assuming the Orders reflect the current Government guidance and information, it is likely that any access to premises will be for restricted access only and therefore clause 27.5 will continue to apply.
The change in alert levels will affect businesses differently and therefore the assessment of what constitutes a fair reduction of the rent and outgoings will vary from lease to lease. In short, subject to the actual details of the Orders on or about 28 April 2020:
Even if clause 27.5 applies remember the amount of any reduction to the rent and outgoings requires landlords and tenants to reach agreement with each other as to what is fair. And yes, it is a reduction not a deferment. As things continue to change and as businesses adapt, what is fair will change.
If you are not on a recent version of the ADLS form of lease with clause 27.5 then the wording of your particular lease will always be critical to determining any rights and obligations of either party.
Talk to us if you do not have a current ADLS Lease so we can review your options under your particular lease with you.
Our advice remains the same with the change of alert level and regardless of what form of lease you are on. We encourage all parties, both landlords and tenants to continue to talk each other regardless of what form of lease you are using to gain an understanding of each other’s position and to negotiate a commercially appropriate outcome for all parties. Circumstances are changing and each stage may only apply for a relatively short period but the effects of COVID-19 are going to last a lot longer. Keep communicating at each step of the way as maintaining a strong relationship with your landlord/tenant is our recommended approach.
We do recommend that you talk to us before you take any firm action under your lease.
Any of our commercial partners set out below would be able to advise and assist you.
|Nigel Moody|||||email Nigel|||||P: 04 916 7465|
|John Steel|||||email John|||||P: 04 916 7495|
|Nigel Stirling|||||email Nigel|||||P: 04 916 7472|
|Claire Byrne|||||email Claire|||||P: 04 916 7483|
|Dave Robinson|||||email Dave|||||P: 04 916 6307|
|Mike Gould|||||email Mike|||||P: 04 916 6302|
|Rhys Williams|||||email Rhys|||||P: 04 916 6452|
|Brett Gould|||||email Brett|||||P: 06 370 6475|