Since the NZ government imposed alert Level 3, tenants and landlords will require analyzing the new limitations imposed for their arrangements of the commercial lease. Following the announcement of aspects of what restrictions are going to apply to workplaces and businesses under Level 3 alert, it is obvious that significant restrictions will not be left, for foreseeable future, on the use of the specific commercial places.
Significant Restrictions under Alert Level 3
Due to the lack of information about the exact restrictions to implement at Level 3 alert, it seems that there will not be a big deal of variation to the restrictions nowadays applying by government under Level 4 alert. The workplace will not be opened unless possible and authorized by government. Workers can perform their duties openly only if they are not able to serve from the house, sites are functioning securely and complying with all health and safety conditions, practicing alternative methods of working, clients are not permitted on the premises, and the companies can do business without public contact directly.
Although, imposing of alert Level 3 will permit various businesses to continue, such as manufacturing, construction and food delivery services, as long as instructions of social distance with clients are being followed, there will still be a lot of commercial tenants that are unable to utilize their premises to adequately conduct their business.
Even those corporations that are capable to enter into their premises may unable to completely use their premises in accordance with the terms of their lease. For instance, hotels will not be permitted to cater to dine-in customers.
What is Clause 27.5?
There has been a lot of discussion about the right of commercial tenants to the rent reduction throughout the current lockdown period. The solution to this issue, ultimately, will depend on the particular wording of each lease.
However, there has been a specific focus on the application clause 27.5 of the standard Auckland District Law Society lease to the current conditions, given its general acceptance and broad use in the market. The Auckland District Law Society Clause 27.5 of the lease shows that a tenant is entitled to reduction of a fair proportion of the rent and bearing emergency expenses if there is an emergency and the tenant is not able to gain access to the premises to fully conduct its business because of reasons of safety to the property or public require to overcome or reduce any risk.
How does Clause 27.5 apply in Level 3 alert?
Under the Auckland District Law Society clause of 27.5, tenants will remain entitled to a fair reduction of the rent and outgoings where they are not able to access and use their premises to completely manage their business due to the restrictions applied by the Government under Alert Level 3.
Hospitality and retail tenants, under Alert Level 4, would have been entitled to a notable abatement due to their inability to utilize their premises, even a complete abatement of rent. At alert Level 3, there is an enhanced capability for such tenants to use their premises, such as for e-sales and takeaway food preparation. This enhanced ability to utilize the premises for the authorized usage under the lease, while not entire use, will need to be considered when determining the rent.
If you have any question about any of the commercial lease arrangements, or if you need assistance at any stage of your lease, please do not hesitate to contact us.