Operators should check leases on rent obligations during lockdown – Colliers

26th March 2020 By Chris Hutching | chris@tourismticker.com | @tourismticker.com

Tourism businesses need to check their leases for “no access” clauses due to the Covid-19 lockdown, says a commercial property specialist.

Chris Farhi, strategic advisory director at Colliers International, said the obligation to pay rent was not always clear in commercial leases.

The most common standard form of commercial property lease in New Zealand, the Auckland District Law Society (ADLS) Deed of Lease, includes a “no access in emergency” clause.

Fardi said the clause was introduced in 2012 in response to the Christchurch earthquakes.

“In the wake of the earthquakes, cordons were put in place that blocked access to some buildings. Tenants were in turn placed in a difficult situation as they were unable to access their premises to conduct business but still needed to pay rent,” Farhi said.

“Whilst originally introduced in response to cordons from earthquakes, the clause covers a range of different emergency scenarios including eruptions, tsunamis, floods or even epidemics and contamination.

“The no access clause provides for a fair proportion of payment of rent to stop temporarily if a property is unable to be accessed in an emergency, and there are rights for the landlord or tenant to terminate the lease if the no access continues for an extended period – the default period is nine months.”

Farhi said the change to alert level 4 as well as the Government’s epidemic notice under the Epidemic Preparedness Act 2006 means that the situation of leases has become clearer.

However, the non-payment of rent was something that landlords would not forget in the short-term, Farhi said.

“Tenants need to be conscious about the potential public relations impact if they stop paying rent, particularly for larger tenants that might have smaller landlords,” he said.

“Similarly landlords should be conscious about business, particularly small businesses that might be impacted by changes in economic conditions. People need to be sensible and make decisions in the wider context of people trying to help one another.”

Daniel Kelleher, partner at law firm Buddle Findlay, said no access clauses would now come into play as there is an emergency and tenants providing non-essential services were now unable to access their premises to fully conduct their business operations.

“The ADLS lease is often modified so people need to check their whole lease. A large number of commercial landlords use other forms of lease or completely bespoke leases, so again, you need to check your lease carefully,” Kelleher said.

“Some leases do not have them, typically those entered into before 2012. Clauses may have also been modified or deleted, or the lease might use a template which does not feature the clause. The relevance and effects of the clause depends heavily on the form of lease.”

Irrespective of the lease, landlords and tenants should be conscious about the impact on long-term relationships if no access clauses were to be activated without good reason.

All non-essential businesses closed from Wednesday at 11.59pm for at least four weeks.

Kelleher says that businesses also need to be conscious of their wider health and safety responsibilities.

“Tenants who no longer have access to premises and have sent employees home to work should remember that they continue to have obligations to their employees as their home will be their workplace,” Kelleher said.

The Epidemic Preparedness Act 2006 imposes a duty for employers to eliminate risks to health and safety so far as is reasonably practicable and to ensure that employees are not put at risk while carrying out work.

“Carrying out an audit of each employee’s homes is probably not going to be reasonably practicable,” Kelleher said.

“However, a checklist for employees to complete themselves might be a reasonably practicable step to take.”