Commercial Leases – Tenant Default and Landlord’s Rights Under Covid-19 Restrictions

July 13, 2020

in Corporate & Business,COVID-19,Property

It is as an unfortunate consequence of Covid-19 that a number of defaults are occurring under commercial leases.

We are consulting both landlords and tenants on a regular basis because of these issues.

The Government has announced an intended rent relief package but this is yet to pass into law. Essentially this is still going to require interaction between Landlord and Tenant and doesn’t address substantive failure by a Tenant under a Lease as opposed to rent relief.

From a Landlord’s perspective it’s important to understand that under the current Covid-19 emergency legislation, amendments to relevant Property Law Act provisions, means the following:

  1. Issue of a notice for cancellation must now provide a minimum of 30 days for a Tenant to rectify before any Enforcement Action can be taken;
  2. Enforcement action would include:
  • Cancellation of the Lease;
  • Retaking of possession, even peaceably;
  • An application to the Court for possession.

This change to the legislation does not prevent a Landlord:

  1. Commencing litigation for recovery of rent arrears; and/or
  2. Issuing a statutory demand under the Companies Act;
  3. Ultimately if a Judgement is obtained and/or a Statutory Demand is not met by the Tenant, the Landlord can apply for liquidation of the Tenant company.

Landlords should also be aware that Tenants do have the ability to seek some protections under the business debt hibernation provisions that have been enacted in respect to the Covid-19 pandemic.  The BDH regime does provide limited protection for a Tenant for an initial one month period and then subject to agreement of creditors for a further 6 months. There are a number of steps that must be taken to comply with the BDH regime and we can advise Landlords and Tenants in relation to that on a specific basis.

Finally we would also point out as we have noted in several of our commentaries on commercial leases throughout the Covid-19 period Landlords should keep in mind that a Court would be unlikely to look favourably on a Landlord’s application for Judgment for rent default if the Landlord has not actively engaged in respect to a rent relief request by the Tenant.  This is particularly so if the lease contains denial of access provisions requiring rent relief but also now under the proposed rent relief code announced by the Government.

There is no “one size fits all” solution and each situation needs to be considered individually both from a Landlord and Tenant perspective.  We are able to provide advice to Landlords and Tenants on any of these matters.

If you have any other questions around business continuity during this period please get in touch with your normal contact at our firm or alternatively contact:

Paul Farry
pfarry@farry.co.nz
09 353 6671

The information contained in this publication is intended as a guide only.  It does not constitute legal advice and should not be relied upon as such.  Professional advice should be sought before applying any of the information to particular circumstances.  While every reasonable care has been taken in the preparation of this publication, Farry and Co. does not accept liability for any errors it may contain. 

Previous post: