Cancelling Commercial Leases in a COVID-19 World

26 August 2021

Along with the current impacts of COVID-19 on our everyday lives, law changes made by the Government are also having an ongoing effect on relationships between commercial landlords and their tenants.

Commercial leases are governed by the Property Law Act 2007, often referred to as the PLA. Ordinarily, landlords have a right to cancel a lease where their tenant is in arrears with their rent. This right to cancel crystalises when the rent has been in arrears for more than 10 working days, and a notice that complies with the PLA demanding payment has been served on the tenant. Following service of the notice, the rent arrears need to have remained unpaid for at least another 10 working days before a right to cancel the lease can be exercised.

However, one of the many law changes made to deal with COVID-19 under the Epidemic Preparedness (COVID-19) Notice 2020 was to extend the deadlines given to tenants to remedy any failure to pay rent as it falls due. The deadlines under the PLA have both been extended to 30 working days and these extensions will remain in force until 6 months after the Epidemic Notice is revoked or expires. The current renewal of the Epidemic Notice will not expire until 20 September 2021, and the extensions to timeframes will continue until 20 March 2022, unless the Epidemic Notice is renewed again.

Assuming the new timeframes have been complied with and a tenant has not remedied their breach then landlords have two options:

  • (a) Apply to the court for an order for possession of the land; or
  • (b) Re-enter the land 'peaceably'.

In the normal course of events the more cost-effective and timely option is to re-enter the land peaceably and change the locks. To do this, landlords must re-enter:

  • (a) During the daytime, which means the time between 6 am and 9 pm; and
  • (b) Peaceably and without committing forcible entry.

Generally, we advise clients that the re-entry should take place outside business hours when the premises are empty and ideally within daylight hours. Re-entry must be done carefully and what is and isn’t acceptable largely depends on the conditions on the ground at the time.

However, landlords should be aware that re-entry will not be a practical option during Alert Levels 3 & 4. At Level 4, all non-essential travel is prohibited. At Level 3, people are allowed to travel to and from their places of work, so long as that work can be done in compliance with COVID-19 guidelines. Although not specifically prohibited, it is unlikely that cancellation through re-entry would be allowed under Level 3. In those cases it will likely be easier to obtain a Court order.

The key takeaways for landlords and tenants to consider is that the timeframes have been extended, and the way in which cancellations may have happened in the past will need to change. Parties to commercial leases must be careful to make sure they are complying with the law.

If you have questions around cancelling a commercial lease, or need help ensuring cancellation is done correctly, our Commercial Disputes & Employment Team are working remotely and able to assist.

Jesse Savage and Levi Harris are part of our Commercial Disputes & Employment team at Norris Ward McKinnon.