Rhys Williams
Published on

You want me to discount your lease payments? Say again!

A landlord might earn kudos and a devoted tenant by reducing your rent for a lockdown period but are you legally entitled to a reduction? Most leases are in the Auckland District Law Society (ADLS) form, which contains the now much scrutinised clause 27.1.

Thankfully, clause 27.5 allows for a “fair” reduction in rent and outgoings in certain circumstances, including as a result of the COVID-19 pandemic, but it is broadly worded to cover a number of possible disasters, so some guidance is needed on what it means and how to use it cost-effectively.

Clause 27.5 ADLS lease disputes

A summary of clause 27.5 can be found here.

This clause has been the subject of debate since the first nationwide lockdown, namely what a “fair proportion” is. There is no set formula to calculate the amount by which rent and outgoings are to be reduced; instead the parties must consider what a “fair proportion" of rent and outgoings is. While a number of disputes arose between landlords and tenants last year, there is currently no helpful judicial guidance as to how a “fair proportion" should be calculated.

Leases that contain clause 27.5 (or clauses to a similar effect), will provide for parties to resolve disputes in arbitration (in theory a faster and less formal alternative to judicial proceedings). In practice, arbitration costs can still be as expensive. Unfortunately, the government scheme to subsidise arbitration costs closed to new applications in March this year. So far, there is no sign on whether this subsidy will be renewed.

The Disputes Tribunal is an inexpensive option to consider; the filing fee for a dispute between $5,000.00 and $30,000.00 is only $180.00. The focus of the Tribunal is on claims up to a value of $30,000.00. It does not matter whether your lease has a binding arbitration clause. The Disputes Tribunal jurisdiction will override that, as long as the amount in issue is under $30,000.00. This can lead to strategic decisions being made on both sides of the fence as to whether the amount in issue should be reduced to have it heard in this forum.

There are no lawyers or judges staring you down in the Disputes Tribunal. That does not necessarily make it any less intimidating, but the Tribunal can also look at what is fair and just in the circumstances, so it does have more leeway in its decision making. When making a claim to the Tribunal, you must make submissions outlining your position, which need to be clear and digestible. If you need help preparing, we are accustomed to making these types of submissions and can assist with their preparation.

If your dispute is over the $30,000.00 threshold, or you would rather a lawyer handle all of the dispute resolution process, or you prefer that the dispute is decided by property law experts - there is another option.

The cost to refer a dispute to the ADLS Property Disputes Committee is $100.00 per party, plus your own legal fees for the preparation of a statement of facts and written submissions. This option is sadly only available if the other party agrees to use this service, so you may need your best persuasion skills just to get them to agree to the process.

The Committee is made up of a number of property lawyers, with the decision made based on the submissions made by each party. The team at Gibson Sheat are able to prepare these.

For additional information, here's a further article on the Covid ADLS terms from 2020 and a webinar that Partner Rhys Williams gave in August 2021 on Commercial lease and rent relief.

If you’re in a situation and are not sure where you stand, we can help! Please call or email Rhys or Matthew, set out what issues you would like help with, whether you are a landlord or a tenant, and we can give you a call to discuss what strategy works best for you.

Rhys Williams
04 916 6452

Disclaimer: The information contained here is of a general nature and should be used as a guide only. Any reference to law is to New Zealand law and legislation. We recommend before acting on it, you consult your accountant or tax adviser