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Do commercial tenants still need to pay full rent during COVID-19 lockdown?

April, 2020

The COVID-19 lockdown has introduced challenges for both commercial tenants and commercial landlords. Many commercial tenants are struggling to pay rent. Many have questioned whether they should even have to pay rent for properties they cannot access legally.

It’s not easy for many landlords, either. If they lose tenants, or aren’t receiving normal levels of rent, they may face challenges paying mortgages.

This week the Government announced legislation to help out in these situations.

  • Currently a landlord can only cancel a lease for non-payment of rent when the rent has been outstanding for more than 10 working days. The Government is extending this period  to 30 working days.
  • Currently a mortgagee can exercise their rights to sale of property 20 working days after giving proper notice to the mortgagor. The Government is extending this period to 40 working days. For mortgaged goods, the period will go from 10 working days to 20 working days.

While this won’t solve everything for commercial tenants or commercial landlords, it should introduce an extra buffer to help businesses as they return to a position of trading. It’s generally in the best interests of both tenants and landlords to maintain their relationships, and this could serve to remove some of the factors that might stress that relationship.

But what about the question of whether commercial tenants should pay their normal rents when they don’t have normal access to their premises? There is an answer… but it’s not quite so certain.

Payment of commercial rent during COVID-19

Does your lease include clauses 27.5 and 27.6? These clauses were introduced into the Auckland District Law Society standard lease form (used commonly across the country, and not just Auckland) following the Christchurch earthquakes.

Back then, tenants whose premises were inaccessible only because they were inside the cordons (and not due to earthquake damage) weren’t entitled to any rent relief. They couldn’t use their premises due to reasons beyond their control, but they still had to pay for them.

Clauses 27.5 and 27.6 address that situation and make it fairer. They provide that:

  • “A fair proportion of the rent and outgoings shall cease to be payable” for the period the tenant can’t access the premises
  • Either party may terminate the lease with 10 days’ notice if the tenant will be unable to access the premises for a period set out in the lease (the default is 9 months).

While there’s been no case or declaratory judgment in relation to COVID-19, it would appear that the lockdown fits the criteria of clause 27.5.

That means commercial tenants may be able to reduce their rent and expenses by “a fair proportion”. Just what a “fair proportion” is will depend on the circumstances. For example, a retail store with no online presence could be expected to fairly have a larger reduction than a business which is still able to operate at some level.

So, if you’re a tenant, should you seek a reduction? If you’re a landlord and asked for a reduction, how should you respond?

Again, it’s worth looking at the broader relationship. Think about how it might affect the other party. Think about how it might affect the stability and longevity of the landlord/tenant relationship.

But if you do want advice on the best ways to maintain those leases - either as a commercial tenant or a commercial landlord - we’re here to lend advice tailored to your situation.

Contact us to talk about your lease situation during COVID-19

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Legal advice for Christchurch businesses during COVID-19

April, 2020

Throughout the COVID-19 lockdown, we’ve been busy providing individuals and businesses with legal advice and support. Some of it is the usual, but most relates in some way to COVID-19 and the law.

In particular, there are a lot of issues Christchurch businesses will need to consider about COVID-19 and its impacts. Here are some of the things we’re bringing to the attention of our clients.

Financial Support

COVID-19 Economic Package

The Government has released a variety of economic responses to the lockdown, with more on the way.

The most significant measure is the COVID-19 Wage Subsidy Scheme, which helps employers and employees of businesses affected by COVID-19. Many businesses have already applied for and received the subsidy, which is paid out as a lump sum to cover a 12-week period.

But it’s vital that employers use the subsidy correctly. If you’re not sure how to apply for the subsidy or ensure you administer it correctly, please get in touch. We’re closely familiar with how the scheme works and how it applies to different businesses.

Talk with us about the Wage Subsidy Scheme

COVID-19 Wage Subsidy for Self-Employed and Contractors

The Wage Subsidy is also available to self-employed people and contractors. Do make sure you’ve applied if you think COVID-19 has affected your income. We can provide you advice about your eligibility and the application process.

Talk with us about advice for self-employed and contractors

ChristchurchNZ Business Support Subsidy for COVID-19

As the first phase of its Economic Recovery Package, ChristchurchNZ is offering a Business Support Subsidy for small to medium sized businesses. This consists of up to a $1000 subsidy to access professional advice about dealing with the economic and resourcing impacts of COVID-19. There is also a full grant of up to $5000 for these services available via funding to the Regional Business Partners Network. The first step in accessing either fund is to register for the Regional Business Partners Network.

Christchurch City Council Rates Payments Deferral for COVID-19

Recognising the financial stress many individuals and businesses are facing, the Christchurch City Council is offering a six month extension on payments for 2019/2020 Rates Instalment 4. The extension is for both business properties and residential properties, subject to meeting certain criteria. Find out more about applying for the extension at the City Council website.

Business Banking Support for COVID-19

All major banks are offering some kind of support or relief for businesses facing financial stress due to COVID-19.

The Government’s Business Finance Guarantee Scheme offers small and medium-sized businesses targeted new loans. These are of up to $500,000, for up to three years, for businesses with annual revenue between $250,000 and $80 million. These are still subject to banks’ individual lending processes.

Individual banks are also offering repayment relief for credit card debt and loans, and temporary credit lines and overdrafts. The ways each bank approaches these will differ, so it’s best to arrange a conversation with them. We’ll be available to help with advice or support through the process.

Talk with us about advice for banking arrangements

Companies Act Changes Due to COVID-19

The Government has announced planned temporary changes to the Companies Act intended to help businesses affected by COVID-19. Per their summary, the changes include:

  • Giving directors of companies facing significant liquidity problems because of COVID-19 a ‘safe harbour’ from insolvency duties under the Companies Act,
  • enabling businesses affected by COVID-19 to place existing debts into hibernation until they are able to start trading normally again,
  • allowing the use of electronic signatures where necessary due to COVID-19 restrictions,
  • giving the Registrar of Companies the power to temporarily extend deadlines imposed on companies, incorporated societies, charitable trusts and other entities under legislation, and
  • giving temporary relief for entities that are unable to comply with requirements in their constitutions or rules because of COVID-19.

While the legislation can’t be passed until Parliament sits again, which is likely to be April 28, the changes will apply with retroactive effect.

If you have pressing concerns about your business during COVID-19, please get in touch. We can advise you on these changes and other arrangements that might be beneficial to you.

Talk with us about your business concerns

Electronic Business Contracts

While it’s not possible for us to witness documents in person, we are able to assist with electronic signing and witnessing. Find out more about affidavits, declarations and contracts here.

Contact us with any COVID-19 legal questions for your business

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