As the delta variant of COVID-19 forces businesses and offices to close, attention once again turns as to how Alert Level 4 impacts commercial leases. Cavell Leitch was able to provide certainty and comfort to our landlord and tenant clients during the 2020 lockdown, and we set out useful information for you below.
Will a tenant be required to pay rent and outgoings under their lease during Alert Level 4?
This will depend on the terms of the specific lease.
Many leases, particularly those entered into under the ADLS Deed of Lease form after 2012, will include a ‘no-access clause' which provides for a ‘fair proportion' of rent and outgoings to cease until a tenant is able to legally trade again. We discuss what a ‘fair proportion' means below.
Some leases may not contain a ‘no access clause', however there may still be good commercial reasons why a landlord and tenant may wish to negotiate a ‘fair' rental discount. The lockdown will of course end at some stage soon, and it may be useful to take a long-term view on how you can preserve the landlord and tenants' ongoing relationship.
What level of discount could be considered ‘fair'?
Just what would constitute a ‘fair' discount will likely differ in each case. It will depend on not only the lease's wording, but also the specific circumstances. For example, some tenants may be completely unable to use their premises, while others will still be able to trade in a limited capacity. It might also be considered ‘fair' that the tenant should continue to make some measure of rent for a premise that is still valuable to them. Alternatively, it could be considered ‘fair' that a landlord may have its own continuing obligations that need to be taken into account.
Will a party be able to cancel a lease because of COVID-19?
A typical commercial lease would not allow the tenant to immediately cancel their lease purely because of the adverse financial effects of a pandemic on their business. Some leases may however state that the lease can be cancelled if the premises still cannot be accessed after a certain period of time. Again you would need specific advice on your lease.
Cavell Leitch's advice for landlords
You will need to obtain specific advice to understand how your particular lease operates in your specific circumstances. Cavell Leitch has a wealth of experience which you can draw on. Our property team will be happy to provide you with simple and bespoke advice that clearly summarises your rights and obligations, and a suggested pathway forward. We can also assist you with negotiations with your tenants and advise you on your options if those negotiations break down and you need to enforce your lease.
Cavell Leitch's advice for tenants
Cavell Leitch would be happy to review your specific lease and advise you on your available options. Our experience tells us that early and open communication with your landlord will be essential. We can also help you to negotiate with your landlord to find a resolution.
We also suggest that you investigate whether there is any other financial support measure available to you, for example access to the wage subsidy.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.