The lasting impact of Coronavirus (aka COVID-19) on the New Zealand economy is yet to be ascertained. However, a major slow-down in the economy now appears inevitable during the lock-down, let alone the personal impact on the health of Kiwis.
In this article we set out useful information for landlords and tenants. Furthermore, we offer you Cavell Leitch’s support in helping you ascertain and mitigate the effects of Coronavirus on you and your business.
Suggestions for commercial landlords:
As of midnight Wednesday 25 March 2020, all of New Zealand will have moved to Covid-19 Alert level 4, meaning that all non-essential businesses will be asked to close for at least the next 4 week period.
The particular wording of the lease will dictate what happens next in this ‘lock-down scenario’, including the extent to which the lease remains on foot and rent remains payable during the lock-down period. Whether a rental and outgoings abatement would apply (during or after the lock down ends) will depend on the specific circumstances and the specific wording of the lease. We can provide specific advice in relation to your situation.
It would furthermore be interesting whether either the landlord or the tenant’s business interruption insurance cover would provide compensation in the case of a loss. The specific policy wording would need to be reviewed to ascertain whether pandemic-type events are excluded from cover. Cavell Leitch would be happy to advise you in this regard.
Practically, we suggest that landlords may wish to consider a long-term perspective if possible. The previous experiences of the bird flu and swine flu events show the impact on businesses may be relatively short and sharp, all things considered. Landlords may therefore wish to be flexible where they can to preserve their relationship with the tenant once the Coronavirus threat subsides.
Of course, there may come a point where it is necessary for a landlord to enforce its rights under the lease, such as whether to recover payments, terminate or re-enter the premises. It is important that a landlord follows the correct process in this regard, or the landlord may themselves be exposed to a damages claim. Cavell Leitch can advise you on your rights and obligations and guide you through the process to ensure your position is best protected.
Suggestions for commercial tenants:
A pandemic-type event would not normally allow a lease to be cancelled or payments to be suspended. However, the situation may be different in the scenario where a Tenant is unable to access their premises to fully conduct their business. Cavell Leitch would be happy to review your specific lease and advise you on your available options.
If your business is affected by Coronavirus, then we suggest that early and open communication with your landlord will be essential. You may be able to agree on a rental holiday or negotiate that penalties for late or incomplete payments are waived.
You should also consider how to reduce your personal exposure under any guarantee that you have given in respect of a lease.
There are also some practical changes you could make to ensure your business remains sustainable:
1. How could you adapt if your customers’ habits change?
2. How will you manage any disruptions to the supply of the essential goods and services your business relies on?
3. We suggest you consider timely and open communication with any creditors if you feel you would be unable to meet your commitments, or if you believe that additional funding may be required in the short-term. For example, you could ask your bank whether you could shift your loan repayments to be interest-only in the short term.
We suggest that landlords and tenants adopt a long-term view and seek specific legal advice
Whether you are a landlord or a tenant, showing some goodwill and attempting to work with the other party to reach a pragmatic temporary arrangement may assist all to minimise loss and to ride out this unforeseen event. Commercial negotiations like this can be undertaken on a “without prejudice basis” to avoid damage to one’s legal position. We regularly assist with these negotiations, helping our clients both behind the scenes and in fronting direct communication with other parties.
Where can you find accurate information on Coronavirus:
The outbreak of COVID-19 is being covered extensively in the media. You may feel that not all outlets are reporting the issues accurately. We therefore suggest that you bookmark the following links for verified information:
Now is not the time to panic. It does make sense to consider the implications of a wide-spread outbreak, and to prepare to ride out the storm. We will get through this. Your team of experts at Cavell Leitch is able to support you and your team as and when you need it. Please do not hesitate to contact the writer if you require assistance or further information.
Please get in touch if we can help in any way.