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How does COVID-19 affect your commercial lease?

25 March 2020

Whether you are a landlord or tenant, the current situation is going to raise certain challenges for both parties in respect of their rights, obligations and liabilities under the lease of a commercial premises.   If you are a landlord you likely have questions in relation to a tenant’s liability to pay the rent in this sort of situation and what happens in the instance they can’t meet their obligations. Similarly, if you are a tenant, you are likely dealing with the uncertainly of what state your business may be in at the end of the lock down and beyond.

Firstly, and I can’t stress this enough, you need to understand your lease and what you can and can’t do in this sort of crisis. Your lease will ultimately determine what happens in an ever evolving crisis. There are provisions in leases which may or may not apply to a pandemic situation.

Secondly, landlords and tenants need to talk to each other and keep lines of communication open. As a tenant there is no point burying your head in the sand and hoping that the landlord will cut you some slack if you can’t meet your obligations under the lease. As a landlord you need to speak to your insurance broker and understand whether you will be able to claim on insurance. If we can take something positive from the Christchurch earthquakes, it is that a lot of leases put in place following the earthquake now include provision for what happens if a premises can’t be accessed.

Lastly, keep up-to-date with relief programs which are being rolled out by the government as this crisis develops and evolves. There may be assistance which can be sought to improve either parties situation.

Each lease situation may have its own legal issues, which will vary in each situation.  I strongly encourage you to seek legal advice and discuss with your lawyer the terms of your lease so that you are prepared to get through this crisis. How you communicate with the other party is imperative to the outcome of the lease, all the while maintaining your legal position should you need to enforce your rights, cancel, or seek relief under the terms of the lease.

 

Odette Cottle is an Associate in the Corporate & Commercial Team at Norris Ward McKinnon. You can contact Odette at odette.cottle@nwm.co.nz