Coronavirus COVID-19 - Current Trends in Lease Negotiations


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Coronavirus COVID-19 Lockdown – Current Trends in Lease Negotiations

 

Over the last few weeks New Zealand has started to feel the full effects of COVID-19. However, as we all know, there is unfortunately a lot more to come.  We now find ourselves living in a whole new world as both individuals and businesses navigate the lockdown period. 

Landlords and tenants assessing lease obligations

As a result of COVID-19, many New Zealand businesses and individuals are assessing the impact of the virus on their contractual obligations, including their lease obligations. 

Who should shoulder the financial impact?

While the lockdown is in effect landlords and tenants are both considering the key issue of who should shoulder the financial impact of the lockdown.

Rights as a landlord

There are a number of different lease forms currently in use in New Zealand, some very standard printed forms, and others specific to particular developments or buildings.  The rights in each case are different.

The standard ADLS lease does not allow for a tenant to unilaterally stop paying the entirety or part of the rent. It can only do this by agreement or as determined by arbitration.

The terms of each lease will need to be reviewed carefully.

Rights as a tenant

The standard ADLS lease provides that “a fair proportion of rent and outgoings shall cease to be payable”. The issue here is one of “fairness”. Again, the terms of each lease will need to be reviewed carefully for application.

Negotiate, negotiate, negotiate! 

The economic impact of COVID-19 will be uneven across industries and therefore tenants will be affected differently.

The current trend, and optimal solution, is for landlords and tenants to review the terms of their lease arrangements, seek advice and negotiate (in good faith) early on.

We have seen over the last few weeks many different and creative ways of landlords and tenants coming to “reasonable arrangements”. Some examples include:

  • agreement as to non-payment of rent for a certain period (i.e. 2 – 3 months)
  • rent reductions of between 20%-50%
  • reduction in outgoings
  • potential use of a valuer to consider overriding economic arguments relating to the business use and its premises
  • potential use of arbitration provisions in lease 

Key message

It must be remembered that landlords have fixed costs that must be met whilst many tenants are suffering a major reduction in business revenue. Fairness runs both ways. The key message is to negotiate, negotiate, negotiate…..in good faith!

 

If you have any questions, ABMM has an experienced Commercial and Property Team that is happy to assist.

Please contact: 

contact@abmm.co.nz or call 06 757 5183

They are all able to provide the necessary advice on what can be very complicated issues in these very difficult times for all. It is essential that both parties are aware of their obligations and how these may have changed.

 

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