The Government has signed the ability for tenants of commercial properties to negotiate some rent relief from their landlords into law. This applies if they have been unable to fully conduct their business at leased premises due to COVID-19 restrictions.
Key points
- The COVID-19 Response (Management Measures) Legislation Act 2021 (Act) passed into law on 2 November 2021. It amends the Property Law Act 2007 (PLA) by introducing a new implied covenant into certain commercial leases.
- A tenant and landlord must agree a 'fair proportion' of the rent to be paid if the tenant has been unable to fully conduct their business at the leased premises due to COVID-19 restrictions.
- The changes come into force on 3 November 2021 and apply retrospectively to leases in force on, or after, 18 August 2021.
Who is affected by these changes?
The changes introduced by the Act apply to any lease that meets the following criteria (Affected Leases):
- is in force on, or after, 18 August 2021; and
- does not include a 'no access in an emergency clause' that covers an epidemic; and
- after 18 August 2021, the tenant is prevented from gaining access to the leased premises to conduct their business as a result of an epidemic; and
- no agreement has been made between the tenant and landlord before the Act came into force about what rent is payable as a result of the epidemic.
New implied covenant
The changes imply a covenant into Affected Leases that a 'fair proportion' of the rent that is otherwise payable by the tenant for that rental period will cease to be payable until the tenant is able to access the leased premises and fully conduct their business for reasons of health and safety relating to the epidemic.
The 'fair proportion' of rent is to be agreed between the tenant and landlord. There is no specific guidance in the Act about how 'fair proportion' will be determined, except that the parties to the lease must consider any loss of income experienced by the tenant since 18 August 2021 as a result of the epidemic.
Contracting out
The parties to a lease can agree that the implied covenant does not apply to the lease through any of the following (provided they reach the agreement on or after 18 August 2021):
- the express terms of the lease; or
- a written memorandum executed by the parties; or
- if implied in a short-term lease not made in writing, by the express or implied agreement of the parties.
The implied covenant does not apply where the landlord and tenant have already agreed on a variation to rent payable as a result of access to the premises being restricted due to the epidemic.
Further information
To understand the full impact of these, including enforcement action and disputes, read our full article here.
Please get in touch with Simpson Grierson’s commercial property experts Greg Allen and Donna Hurley for further advice or assistance.