NO ACCESS CLAUSE IMPLIED IN COMMERCIAL LEASES
The COVID-19 Response (Management Measures) Legislation Act 2021 passed into law on 2 November 2021. This change is of particular importance for commercial tenants that don’t have any clause that entitles them to negotiate a discount in rent in case of emergencies.
On 28 October 2021, the Government amended the Property Law Act to imply a ‘no access in an emergency clause’ into commercial leases which do not already provide for adjusted rent payment terms during an epidemic emergency. The implied clause started applying from 18 August 2021, which was the start of the most recent rise in Alert Levels but will not affect agreements between landlords and tenants to adjust rent obligations made prior to that date.
Businesses without ‘no access’ clauses have been liable to pay full rent throughout the COVID-19 pandemic, although many landlords and tenants have negotiated rent reductions even without a ‘no access’ clause.
The no access clause allows the lease parties to agree on a ‘fair proportion’ of rent and outgoings that should be reduced during an emergency if the tenant cannot access the property to conduct their business fully.
The assessment of what is a fair proportion of rent is subject to agreement between the landlord and tenant. They are to consider any loss of income experienced by the tenant during the period they are unable to access the premises due to lockdowns or because of reasons of health or safety related to the epidemic.
The changes also require the parties to take all reasonable steps to respond to a communication from the other party about the operation of the no access clause, with any disputes being referred to arbitration under the Arbitration Act. Non-binding mediation and other dispute resolution alternatives such as expert determination may also be used to resolve the dispute.
The New Zealand Dispute Resolution Centre is offering a speedy low-cost fixed fee arbitration and mediation service for parties in such disputes where they have been unable to agree an appropriate level of rent reduction.
RENT RELIEF IN THE COVID-19 LOCKDOWN
For those who have commercial leases, there are questions around whether there is a right for tenants to ask for rent relief and if so, what that relief should look like.
A commonly used form of commercial lease is the Auckland District Law Society lease, which has been in use since 2010. That lease (in clause 27.5) makes provision for rent reduction, where the tenant is unable to gain access to the leased premises because of an emergency situation, such as the COVID-19 lockdown. In such cases, a fair proportion of the rent and outgoings cease to be payable.
There has been much publicity since the start of the lockdown on what is a fair proportion of the rent and outgoings that should cease to be payable. It is not uncommon, depending on if you are a landlord or a tenant, that what is fair looks very different. While many commercial parties have been able to resolve this with negotiation, there are a large number who have not been able to do so and who require assistance.
NZDRC has launched a reduced cost and fixed fee arbitration and mediation service specifically to help parties to such leases, so they can access a fast and cost-effective means of resolving their rent dispute, providing them with commercial certainty in uncertain times.
HOW CAN ARBITRATION HELP?
The objective of arbitration is to provide a flexible and efficient means of resolving disputes quickly, cost-effectively, privately and confidentially without necessarily adhering to the formalised, technical procedures of litigation.
Whilst arbitration is closely related to litigation, there are several key differences which make it an important and attractive alternative to state litigation. In particular, arbitration gives the parties the power to choose their own decision-maker, place and time of a hearing, and as far as they can agree, to control the arbitration procedures which may be varied to suit the nature and complexity of the dispute.
Parties who wish to avail themselves of this special fixed-fee service, will need to agree to proceed under the NZDRC ECA45 Arbitration Rules.
Those Rules are specifically designed to allow the quickest and most cost-effective resolution of commercial disputes, providing for a documents only arbitration procedure which is designed to result in an Award being made which finally determines all substantive issues in dispute within 45 working days.
This provides parties with a definitive answer within the shortest possible time and at the lowest possible price.
HOW CAN MEDIATION HELP?
Mediation is a consensual, confidential and relatively informal negotiation process in which parties to a dispute use the services of a skilled and independent mediator to assist them to define the issues in dispute, to develop and explore settlement options, to assess the implications of settlement options and to negotiate a mutually acceptable settlement of that dispute which meets their interests and needs.
The objective of mediation is to enable and empower the parties to negotiate and resolve the dispute promptly, cost-effectively and confidentially rather than to have a decision imposed upon them by a judge, arbitrator or adjudicator. The process enables the parties to negotiate flexible and creative solutions which need not conform to strict legal rights or general community standards.
In this way, where parties are willing and able to work toward a settlement of the dispute, mediation can help them find a solution that may better meet more of their respective needs and requirements than what might otherwise be the outcome where a decision is made based on their strict legal rights and obligations.
The special mediation service launched will provide the parties with a half-day mediation. This will take place by videoconference and can be set up and completed within short order (for urgent matters within 24 hours).
HOW TO ACCESS THE NZDRC SERVICES
Whether parties choose to arbitrate or mediate, they will need to agree to engage in that process. This can be done by completing the special form agreement to arbitrate or special form agreement to mediate, copies of which may be downloaded directly from the NZDRC website.
Once the agreement has been signed, the parties simply need to contact the NZDRC Registry staff who will guide them and their advisers through the process.