COVID-19 – Love won’t pay the rent

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They say love won’t pay the rent

Before it’s earned, our money’s all been spent.

Or so sang Sonny and Cher in those halcyon days when social distance meant staying at least six inches apart at one of those terrible square dances on Saturday night.  But what if it’s now 2020 and you are still paying rent for premises you can’t access, while you are at home trying desperately to keep your business afloat?

It depends largely on your lease.  Since 2012 most new leases have included a no-access clause because of the Christchurch earthquake.  It says that if you can’t access your premises, your rent and outgoings should reduce by a fair proportion.  If you have a non-essential business that is completely non-functional because of your lack of access, the rent reduction could be high.  If your staff can still operate remotely, for example because you still have a server on the premises, arguably your rent reduction should be lower.  There are several factors that may be relevant to determining a fair proportion – these need to be identified and negotiated on a case-by-case basis as each situation is unique.

These clauses also say that if you can’t access the premises for a certain period, usually nine months, you can terminate your lease at the end of the nine months.  Or if you can reasonably ascertain in advance that you will have nine months without access, you can terminate your lease from the beginning of the nine month period.  If the Government extends the State of Emergency though it’s likely to do so a month or two at a time.  If we have a State of Emergency for nine months, you probably won’t be able to reasonably ascertain until near the end that you will not have access during that entire period.

Older leases don’t have a no-access clause, in theory leaving tenants at the mercy of their landlords.  If level 4 is extended for long enough though, some tenants are likely to issue an ultimatum to their landlords:  If you want your tenant to survive and pay the rent, there will have to be some kind of rent reduction.

We are involved in a number of these negotiations at the moment, for both landlords and tenants. Smart landlords are already asking their lawyers to check their leases, then contacting their tenants to discuss these issues before they become an even greater problem.

Get in touch to talk about implications for you and your business.

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Les Allen
Partner

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