8 Apr 2020

Covid-19: 'Emergency' rental payments clause helping tenants and landlords - ADLS

9:03 am on 8 April 2020

The creators of a commercial property clause that may exempt tenants from paying all or some of their rent say it is working as intended.

14588891 - rental agreement form with signing hand and keys and pen

Photo: 123RF

Clause 27 of the Auckland District Law Society (ADLS) Deed of Lease includes a "no access in emergency clause", which the Property Councilwarned could lead to widespread non-payment that could devastate the sector.

However, ADLS property law committee member Joanna Pidgeon said there were safeguards.

"A fair proportion [for payment] needs to be agreed on... [both parties] need to put forward a position and give the evidence to support it and if you have an initial to and fro and can't agree, then you can go to mediation and arbitration and this can be done online through Zoom.

"You need to not just dig your heels in, but give evidence as to why what you're suggesting is fair... and that is not just looking at the tenant circumstances, it's looking at the landlord circumstances as well."

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She said the clause, which was added after the Canterbury earthquakes, was working as intended.

"It is making landlords and tenants talk. I know quite a few landlords and tenants are negotiating an interim position ... most realise that the success of the landlord relies on having tenants who are strong and able to trade and in the same way, tenants don't want to see the landlords fall over either."

She said the term "fair proportion" could not be prescriptive, or have certain percentages for payment set because each commercial agreement was different.

"We just have so many different situations. Some people cannot trade at all - cafes have had to close completely, some businesses like law firms may have a server still in their premises which is enabling people to work remotely, some retail shops may have ceased trading, but now able to sell stuff online."

"By putting that clause in it forces the landlord and tenant to actually talk to each other and work out a fair proportion to deal with a situation where they can't access premises."

The clause has no court precedent and Pigeon said it was unlikely this situation would force it before the courts.

"In the ADLS dispute resolution clause it requires mediation and then arbitration, so that's more of a fast-track, private process ... it will make it harder for people to actually apply to court given arbitration is the specified route for resolving matters."

She said as a whole landlords and tenants wanted to come to an agreement that was fair.

"What I'm seeing is experienced landlords actually using it as an opportunity while they're helping out the tenant. They're thinking what else might I get... I've just done one transaction today where a landlord offered a full week's rent free with a partial operating expense, on the basis that the lease was renewed.

"A lack of payment of rent, you might get something else - a further term, a right of renewal. So there's lots of different things people need to look at."

"The issues aren't going to run away... we're going to be having, unfortunately, some difficult times in our economy so the parties really need to work together collaboratively to see their way through so that there are tenants able to pay rent and continue trading into the future."

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