Rent relief for “no emergency access” inserted in leases

Yesterday the government introduced the COVID-19 Response (Management Measures) Bill.

Among other changes, the bill:

  • involve a clause providing for a “fair” reduction in rents and expenses in the event of an epidemic in the leases (which do not already contain such a clause);
  • prevent any enforcement action incompatible with this implicit clause; and
  • require that disputes relating to the implied clause be referred to arbitration.

What leases are taken?

The change would apply to all leases (or subleases):

  • which are in force at any time between September 28, 2021 and the date on which the relevant provision is repealed (which is not yet known); and
  • do not already include an equivalent provision.

The 2012 edition of the ADLS Standard Rental Agreement contains a “no emergency access” provision to clause 27.5, which was inserted in response to the “red zoning” of the property following the earthquakes. of Canterbury. Leases on this form would not be affected by the implied clause.

The clause will however be inserted in other leases without such a provision, which could include leases on earlier versions of the ADLS Standard Rental Agreement, leases appearing in the 2012 edition of the ADLS Standard Rental Agreement where the parties deleted clause 27.5. during negotiations or leases that have been the subject of special negotiations between the parties. The effect is that the conditions expressly agreed between the parties are changed and the allocation of risk agreed by the parties is undoubtedly compromised.

The implied clause can be expressly excluded by the parties. However, any agreement to exclude the implied clause must be made. on where after September 28, 2021. A pre-existing clause in a lease that excludes all implied clauses in the property law would not be effective.

What will the article say?

The clause would provide that a fair proportion of rent and expenses will cease to be due for a period:

  • which falls between September 28, 2021 and the repeal date of the article concerned;
  • when there is an epidemic; and
  • when the lessee is unable to access all or part of the rented premises to fully conduct their operations, for health or safety reasons linked to the epidemic, including alert level restrictions.

Unlike a previous proposal presented by the government in June 2020, the clause will largely (but not completely) align with the equivalent clause of the 2012 edition of the ADLS Standard Rental Agreement.

How will the right proportion be determined?

The bill (in the opinion of the authors, unusually and very optimistically) states that “the right proportion will be agreed between the lessor and the lessee”.

There is little guidance on how the fair proportion is to be determined, although cases decided in relation to clause 27.5 of the ADLS Standard Rental Agreement may provide the parties with some assistance in determining what is “fair”. Specifically, it was suggested in one case that the right proportion would be assessed on the basis of what a willing landlord and tenant would arrive at, taking into account the factors of benefit or harm on both sides. From a tenant’s perspective, we believe that a key factor will often be the extent to which they are able to use the premises at the relevant alert level.

The only indication the bill provides with respect to the “fair proportion” is that any COVID-19-related variation in rent or expenses compared to the period after August 18, 2021 (being the date on which the New Zealand has recently been upgraded to Alert Level (4) to be considered by the parties.

What happens if the parties do not agree?

If the parties do not agree, the dispute should be referred to arbitration (apparently regardless of the dispute resolution provisions existing in the lease).

The landlord would not have the right to take enforcement action until the landlord and tenant have agreed on the right proportion. Tenants would therefore have considerable power to resist enforcement measures by refusing to accept landlord’s abatement proposals. Homeowners would then have to obtain an arbitration award confirming the amount of arrears for the period in question before they can take enforcement action for those arrears.

As noted above, the government has previously proposed to introduce in certain leases a rent reduction clause (different). This proposal was blocked by New Zealand First, citing (among other things) the sanctity of the contract. The government subsequently made subsidized mediation and arbitration services available. Adoption has apparently been low, which may suggest that there are few unresolved disputes over rent reduction.

The timing of the government’s proposal to rewrite landlord-tenant contracts is curious. The issue of rent to be paid during the lockdown was first raised around 18 months ago and many are hopeful that Auckland is now nearing the end of its final lockdown. Numerous cases of rent reduction have been agreed to by landlords and tenants over the past 18 months. The need to include a new clause in the leases at this late stage is unclear.

There will be a “short” select committee process on the bill, with the government indicating that it is particularly interested in submissions regarding when the proposed clause should come into force.

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