"A cost effective approach to rent relief for commercial leases during lockdown
There has been a great deal of discussion recently about clause 27.5 in the latest version of the adls agreement to lease, and the implications of this where a tenant has been unable to access the premises during lockdown.
Refer to our general article on commercial leases during covid-19 here.
Clause 27.5 states that:“If there is an emergency and the Tenant is unable to gain access to fully conduct the Tenant’s business from the premises… then a fair proportion of the rent and outgoings shall cease to be payable…”
The Courts have not yet considered a case involving this clause so there is some uncertainty about how it will be applied. For instance, what is a “fair proportion” of rent and outgoings? There are many potential considerations which could go into determining this, and it’s entirely possible that landlords and tenants will not be able to agree. In that case, how is the disputed resolved?
The adls agreement to lease provides a dispute resolution process where disputes are referred to arbitration. This will probably work quite well in cases where there is a large amount of money at stake, however where the rent is much lower, or the difference between the parties’ positions is small, there may only be a few thousand dollars in dispute and the cost of an arbitrator may not be justified.
For disputes under $30,000 the Disputes Tribunal has jurisdiction. Unlike the District Court or High Court, the fact that there is an arbitration clause in the lease agreement may not prevent the Tribunal from deciding a case. This means that if either party wants to use the Tribunal to resolve a dispute under $30,000 rather than an adjudicator, they could.
This may result in some interesting outcomes. The Tribunal is required to reach an outcome that it thinks is fair and just. It will consider the law but is not required to apply it strictly. This means that apparently similar cases may be decided in quite different ways according to the surrounding circumstances of each case. It also means that commercial tenants may prefer to go to the Tribunal rather than to arbitration if they perceive that a Tribunal Referee will be more compassionate to the plight of tenants than a more legalistic arbitrator might be. It remains to be seen whether this is the case.
If you have a dispute about the appropriate reduction in rent and outgoings for a commercial property, either as the landlord or tenant, we can help you negotiate a suitable outcome. If the dispute cannot be resolved, we can also assist you in arbitration or help you prepare for the Disputes Tribunal."