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Commercial Leases: Covid-19 Response (Management Measures) Legislation Act 2021 in Force
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New changes to commercial leases under the COVID-19 Response (Management Measures) Legislation Bill
Parliament have made some notable amendments to the Covid-19 Response (Management Measures) Legislation Bill, including the start date of the “affected period” and how the parties are to determine “fair proportion” of the rent that will cease to be payable.
Last month we released an article (found here) regarding the Omnibus Bill, Covid-19 Response (Management Measures) Legislation Bill (Bill) in relation to the commercial lease amendments to the Property Law Act 2007 (PLA).
The original Bill proposed to amend the Property Law Act 2007, so that a new implied clause be inserted into all leases from 28 September 2021 stating that in the event of an “epidemic”, where the tenant is unable to gain access to all or part of the leased premises, the landlord and the tenant are to agree to a “fair proportion” of the rent and outgoings to be reduced.
This has quickly progressed through Parliament and the Covid-19 Response (Management Measures) Legislation Act 2021 (Act) was given royal assent on 2 November 2021, which can be found here. We note that while these amendments are in force, they are not yet reflected in the PLA.
Parliament have made some notable amendments since our previous article, including the start date of the “affected period” and how the parties are to determine “fair proportion” of the rent that will cease to be payable.
New date for affected period
The date for the affected period was originally set to start 28 September 2021 however the new section 245F of the Act states that the affected period starts on 18 August 2021. This now aligns the affected period with the date which New Zealand last moved into Covid-19 Alert Level 4.
Added guidance around interpretation of ‘fair proportion’
Parliament has removed the previous wording and provided more guidance around the interpretation of ‘fair proportion’. This point was heavily criticised in the Bill as it was likely to attract disputes between the lessor and the lessee due to the lack of guidance on the interpretation of “fair proportion”. The new wording to be inserted in Schedule 3 of the PLA, after clause 4, states that:
“In determining the fair proportion, the matters that the lessor and lessee will consider must include any loss of income experienced by the lessee in respect of that rental period because, for all or any of that rental period,
(a) there is an epidemic; and
(b) the lessee is unable to gain access to all or any part of the leased premises to conduct fully their operations in all or any part of the leased premises, because of reasons of health or safety related to the epidemic.”
The previous wording stated:
“In determining the fair proportion, the matters that the lessor and lessee will consider must include whether, and, if so, what variations were made to rent payable by the lessee for a rental period all or any of which is on or after 18 August 2021 and before the start of the affected period, and were made for reasons that are or include that…”
We consider the new wording a positive step for the interpretation of clause 4A. However, there will no doubt still be some disputes around this clause to determine how the consideration of loss of income experienced by the lessee in respect of the rental period is fairly reflected in the rental amount that shall cease to be payable. We consider that a percentage calculation in relation to the loss suffered and the total rental value would be the likely scenario.
Aligning with our previous article, we are recommending to clients that they take a consistent approach to the agreements reached earlier in Alert Level 4 and 3 and that this amendment might not change that.
Author: Cameron Hart