Rural Leases; More on COVID and access issues to land
Posted: 12 August 2020
In the Autumn edition of Rural eSpeaking we discussed the situation that COVID had caused with leases where tenants were unable to access their premises due to lockdown restrictions. Potential issues for the rural leasing sector arose from this problem, particularly given that rural leases are often in a different form to urban commercial property leases.
The article pointed out that the main lease issue due to COVID was the inability of tenants to access their premises. Since we published the Autumn edition, the government has announced that it proposes further changes to the Property Law Act 2007 where it would imply in certain leases a clause similar to that in the latest version of Auckland District Law Society (ADLS) lease, section 27.5, where a tenant has:
- Twenty or fewer full-time equivalent staff per lease site
- A New Zealand-based business, and
- Not already come to an agreement for a rent abatement with their landlord.
Of interest to rural tenants is that the government’s proposals indicated that the clause would have a wider effect than the ADLS ‘no access’ clause in section 27.5. It would particularly apply ‘where there is, or has been, a material negative impact on a Tenant’s business due to COVID-19, whether or not the Lessee is able to access the premises’ (our italics).
As you can see, a tenant’s ability to access the premises is not the only criteria in the proposal. The more important criteria would appear to be whether or not COVID has had a materially negative impact on a tenant’s business. Therefore, if the proposed legislation is enacted, it would mean that where, in the rural lease setting, a tenant may still have been able to actively access, and farm or crop the land, if the business has been affected by COVID they could still take advantage of this implied clause. An example of this is where a lettuce supplier for a fast food chain has still had access to their growing crop, but the demand for salad leaves had disappeared as takeaway outlets had been closed during Level 4.
There have been instances where supply chains have been disrupted (see the example above) or ordinary ‘on account’ or prepayments for supply have not been made and cash flow problems have arisen. It would appear that, in these circumstances, the ability to require a good faith negotiation for a rent abatement (or other measures) would be available under the proposals.
Clear guidelines needed
The other point to note about the government’s proposal is that the Cabinet paper made it clear that it would implement clear statutory guidelines for interpreting the implied clause. The weakness of the ADLS clause is that there is nothing surrounding the clause to give guidance as to what factors should be considered when determining what is a fair (our italics) proportion of rent to abate, etc. As a result, it would appear that the proposed legislation would be fairly prescriptive as to what factors should be taken into account when interpreting and applying the implied clause.
The New Zealand First party, that had supported the proposed legislation, has now withdrawn its support. As a result, it has just been announced that rather than proceeding with these changes right now, the government will establish a fund ($40 million) to help pay arbitration costs for tenants and landlords.
Post-election, given the current polling trends, it may well be that the changes proposed by this government will be back on the agenda.
DISCLAIMER: All the information published in the Property eSpeaking, Commercial eSpeaking, Trust eSpeaking, Rural eSpeaking, and Fineprint newsletters is true and accurate to the best of the authors’ knowledge. It should not be a substitute for legal advice. No liability is assumed by the authors or publisher for losses suffered by any person or organisation relying directly or indirectly on this article. Views expressed are those of individual authors, and do not necessarily reflect the view of this firm. Articles appearing in Property eSpeaking, Commercial eSpeaking, Trust eSpeaking, and Fineprint may be reproduced with prior approval from the editor and credit given to the source. Copyright, NZ LAW Limited, 2019. Editor: Adrienne Olsen. E-mail: [email protected]. Ph: 029 286 3650 or 04 496 5513.
