3/11/2021·5 mins to read
Covid-19 related commercial leasing provisions pass into law
The COVID-19 Response (Management Measures) Legislation Act 2021 (Act) passed into law on 2 November 2021. The Act makes amendments to the Property Law Act 2007 (PLA) that 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 fully conduct their business at the leased premises due to Covid-19 restrictions.
- The changes come into force on 3 November 2021 and apply retrospectively as set out below.
Changes from the previous Bill
We previously released an article on the COVID-19 Response (Management Measures) Legislation Bill outlining the proposed changes that have now come into force, this can be read here.
There have been some amendments to the previous version of the Bill, including:
retrospectively applying the implied covenant to leases on or after 18 August 2021 (previously it only applied from 28 September 2021);
in determining the fair proportion of rent, parties to the lease must consider any loss of income experienced by the tenant since 18 August 2021 as a result of the epidemic;
parties to a lease must take all reasonable steps to respond within 10 working days to any communication from the other party regarding the new provisions; and
- in the event of a dispute, parties may use any form of non-binding or binding disputes resolution to reach a resolution before the dispute is referred to arbitration.
We have outlined below the changes implemented by the Act and who is affected by them.
Who is affected by these changes?
The changes introduced by the Act apply to any lease that meets the following criteria (Affected Leases):
is in force on or after 18 August 2021; and
does not include a “no access in an emergency clause” that covers an epidemic; and
after 18 August 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 Act came into force about what rent is payable as a result of the epidemic.
New implied covenant
The changes 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 for reasons of health and safety relating to the epidemic. The implied clause applies retrospectively from 18 August 2021.
The “fair proportion” of rent is to be agreed between the tenant and landlord. There is no specific guidance in the Act about how “fair proportion” will be determined, except that the parties to the lease must consider any loss of income experienced by the tenant since 18 August 2021 as a result of the epidemic.
The parties to a lease can agree that the implied covenant does not apply to the lease through any of the following (provided they reach the agreement on or after 18 August 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 does 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 18 August 2021 that is inconsistent with the new provisions, the landlord’s actions will be in breach of the PLA. The landlord’s actions include any action taken before the tenant and landlord have agreed what is the “fair proportion” component of rent under the new provisions.
Parties to the lease are to take all reasonable steps to respond within 10 working days to any communication from the other party about the operation of the new provisions.
Any dispute arising under the new provisions (including whether they apply to a certain lease) will be referred to arbitration under the Arbitration Act 1996. However, the parties may use another form of non-binding or binding disputes resolution to attempt to resolve the dispute before a referral is made to arbitration.
Get in touch
If you have any questions about these new changes and how they may impact on your leasing arrangements, please get in touch with one of our contacts (pictured right).
Special thanks to Rebecca Colby and Genevieve Cockburn for their assistance in writing this article.