Rent Abatement

In the wake of more unsettled weather across New Zealand, including April’s Cyclone Vaianu which delivered damage across parts of the North Island, rent abatement clauses in commercial leases are becoming an increasingly important safeguard for tenants who may be prevented from accessing their premises because of an emergency. 

What does your lease say, and, if applicable, how might a rental abatement clause apply to you?

The Default Position under the Law Association Deed of Lease

The Seventh Edition (2024) of the Law Association Deed of lease provides a default mechanism for rent abatement where a tenant’s access to a premises is prevented by an emergency.

No Access in Emergency - Clause 29

This will apply where, due to an emergency, a tenant is unable to gain access to the premises to fully conduct their business for reasons relating to the safety of the public or property, or the need to prevent, reduce or overcome any hazard, harm or loss, that may be associated with the emergency. This includes the following situations:

• A prohibited or restricted access cordon applying to the premises.
• A prohibition on the use of the premises pending completion of structural engineering or other reports and certifications required by any competent authority.
• A restriction on occupation of the premises by any competent authority.

A “fair proportion” of rent and outgoings will cease to be payable under the lease for the period during which the tenant is unable to access the premises, in addition to other rights and remedies available under the lease.

What is a Fair Proportion?

If applicable, rent will be abated in the proportion provided for at Schedule 1 of the lease. Unless provided otherwise, this proportion will be 50%.  After 20 working days (and within 3 months following access being restored), either party may seek to review the fairness of this proportion, having regard to the relative effect of the inability to gain access to the premises on each party’s position.

 What Would and Wouldn’t Qualify?

An emergency for the purposes of clause 29 is a situation resulting from a natural or unnatural event, including:

• a natural disaster or extreme weather event, such as a storm or cyclone;
• a man-made event, such as a serious fire, or leak or spillage of a dangerous substance;
• an epidemic or pandemic;           

which causes (or may cause) loss of life or serious injury, or seriously endangers the safety of the public or property. It must not be caused by either the landlord or the tenant.

Depending on the lease, a tenant may also be entitled to a rent abatement where access to the premises is prevented by situations other than emergency, including damage to the premises or landlord works.

Notwithstanding that some commercial leases contain default provisions, it is important that any lease is carefully reviewed before it is entered into, or before any party seeks to rely on a rental abatement clause. Certain provisions may have been expressly excluded or varied, the lease may be an older form of ADLS lease, or it may be an entirely bespoke lease.

Our team of solicitors are available to assist with any leasing reviews and drafting requirements.

This article is for general informational purposes only and does not constitute legal advice. While every effort has been made to ensure the accuracy of the information, readers should not rely on this article as a substitute for professional legal advice.