30/09/2021·2 mins to read
Bill proposes to implement Covid-19 related implied covenants to leases
The COVID-19 Response (Management Measures) Legislation Bill (Bill) proposes changes to the Property Law Act 2007 (Act) that will introduce a new implied covenant into certain commercial leases.
The implied covenant provides that a tenant and landlord must agree a “fair proportion” of the rent to be paid if the tenant has been unable to conduct their business at the leased premises due to Covid-19 restrictions.
- The Bill had its First Reading on 29 September, and these changes will come into force the day after the Bill receives royal assent and apply retrospectively as set out below. We expect the Bill will be passed quickly, and become law in the last two weeks of October.
Who is affected by these changes?
The Bill was introduced in Parliament on 28 September 2021, and if passed into law, the changes will apply to any lease that meets the following criteria (Affected Leases):
is in force on 28 September 2021; and
does not include a “no access in an emergency clause” that covers an epidemic; and
after 28 September 2021, the tenant is prevented from gaining access to the leased premises to conduct their business as a result of an epidemic; and
- no agreement has been made between the tenant and landlord before the Bill comes into force about what rent is payable as a result of the epidemic.
New implied covenant
The proposed changes will imply a covenant into Affected Leases that a “fair proportion” of the rent that is otherwise payable by the tenant for that rental period will cease to be payable until the tenant is able to access the leased premises and fully conduct their business.
The “fair proportion” rent is to be agreed between the tenant and landlord. There is no specific guidance in the Bill about how “fair proportion” will be determined, except that the parties to the lease must consider any variations to the rent payable that were made between 18 August 2021 and 28 September 2021 as a result of the epidemic.
The parties to a lease can agree that the implied covenant will not apply to the lease through any of the following (provided they reach the agreement on or after 28 September 2021):
the express terms of the lease; or
a written memorandum executed by the parties; or
- if implied in a short-term lease not made in writing, by the express or implied agreement of the parties.
As noted above, the implied covenant will not apply to a lease where the landlord and the tenant have already agreed on a variation to rent payable as a result of access to the premises being restricted due to the epidemic.
If a landlord exercises a right or applies a remedy in respect of a non-payment of rent by a tenant after 28 September 2021 that is inconsistent with the new provisions, the landlord’s actions will be in breach of the Act. The landlord’s actions will include any action taken before the tenant and landlord have agreed what is the “fair proportion” component of rent under the new provisions.
Any dispute arising under the proposed new provisions (including whether they apply to a certain lease) will be referred to arbitration under the Arbitration Act 1996.