COVID-19 Alert Level 2: What does it mean for landlords and tenants?

Tuesday 19 May 2020

Authors: David Friar, Jane Holland and Morgan Powell

The formal Order giving effect to Alert Level 2​​​ has now been published, setting out the COVID-19 measures that business and services are required to comply with. The Order can be found here.

Business owners will need to ensure that they operate their business in accordance with the Order. In addition, landlords and tenants will be focused on the extent to which the ​​Order restricts access to the premises, particularly in light of “no access" clauses in some leases which allow for rent and outgoings to be suspended where access is prohibited or restricted. We consider these implications below.

Restrictions on u​​se

Unlike the Orders giving effect to Alert Levels 3 and 4, the Alert Level 2 Order does not require any premises to close. The only exception is for licenced-premises, which cannot open until 21 May 2020 unless custom​​ers are present to dine.

Although the Orders do not require premises to close, the​​y contain significant restrictions on the use of premises. All businesses must ensure that workers remain one metre away from each other (to the greatest extent practicable), and keep records to enable contact tracing of workers.

There are also specific requirements in respect of customers and​​ visitors for different types of businesses.  The key requirements are as follows:

Businesses including offices, factories, gyms​​​ and public facilities (such as pools, libraries and museums) must:

  • Ensure that all visitors and customers remain one metre away from each other and workers (to the greatest extent practicable), and

  • Keep records to enable contact tracing of visitors and customers.​

Businesses such as cinemas, theatres, stadiums, conc​ert venues, conference venues and casinos must:

  • Ensure that all visitors and customers remain one metre away from each other and workers (to the greatest extent practicable),

  • Ensure that no more than 100 visitor​s and customers are on the premises at any one time, and

  • Keep records to enable contact tracing of visitors and customers.​

Retail businesses such as shopping malls, superm​arkets, marketplaces, takeaways (where food is not sold or provided for consumption on the premises)and retail stores must:

  • Ensure that customers remain two metres away from each other and from workers (to the greatest extent practicable),

  • Ensure that no more than 10 customers who are part of a gathering are on the premises at any one time,​

  • But are not required to keep records to enable contact tracing of visitors and customers.

Hospitality businesses that serve food or drink, suc​h as restaurants and cafes, must:

  • Ensure that no more than 100 customers are on the premises at any one time,

  • Ensure that each customer is seated at a table (other than when entering, using a toilet or bathroom, paying, or departing),

  • Ensure that no more than 10 customers are seated at a table together,

  • Ensure that adjacent tables are arranged so there is at least a one-metre separation between the seated customers or clients at adjacent tables,

  • Ensure that only one worker serves at any table, and

  • Keep records to enable contact tracing of visitors and customers.

The restrictions for hospitality businesses do ​​not apply to hotel room service, workplaces providing food or drink to their workers, and cinemas or theatres selling food or drink to customers when they are seated inside the cinema or theatre.

Finally, business that must operate with clo​se proximity, such as hairdressing, massage, taxis, and professional sports, must:

  • Ensure that all people remain one metre away from each other (to the greatest extent practicable), except to the extent required for the business, and

  • Keep records to enable contact tracing of visitors and customers.

Implications for landlords and te​​nants​

“No access" clauses in leases, such as clause 27.5 of the Auckland District Law Society lease, have allowed many tenants to claim a suspension of rent and outgoings under Alert Levels 3 and 4. That is because that clause provides that, if there is an emergency, the tenant is entitled to a suspension of some or all of the rent if the tenant is “unable to gain access to the premises to fully conduct the tenant's business from the premises" for a number of reasons, including, under subclause (c), a “restriction on occupation of the premises by any competent authority".

Under the Orders giving effect to Alert Levels 3 and 4, many tenants were prevented from occupying their premises. In such a case, the tenant is entitled to a suspension of a “fair proportion" of rent and outgoings. For more, see our earlier updates here.

However, the position is different under the Alert Level 2 Order. There are no longer any restrictions on accessing the premises. Instead, those restrictions on access to the premises now been removed and replaced with restrictions on use.

In our view, it is unlikely that tenants will be entitled to a reduction of rent or outgoings under subclause (c) of clause 27.5 during Alert Level 2, because, for the clause to apply, there must first be a restriction on access. Under the Alert Level 2 Order, there is no longer any restriction on access to premises.

Despite this, it is possible that tenants may still seek to argue that they remain entitled to a reduction, by claiming that the Alert Level 2 Order makes them “unable … to fully conduct their business", and that they do not need to also show that they have been prevented from accessing the premises under clause 27.5.

No doubt there will be discussions between landlords and tenants about the implications of Alert Level 2. But as has happened previously, we would expect that most parties will reach a commercial agreement.

If you have any questions about the matters raised in this article, please get in touch with the contacts listed, or your usual Bell Gully adviser.

To view our other COVID-19 related publications, click here.

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Disclaimer

This publication is necessarily brief and general in nature. You should seek professional advice before taking any action in relation to the matters dealt with in this publication.

For more information
  • David Friar

    Partner Auckland
  • Jane Holland

    Partner Auckland
  • Morgan Powell

    Senior Associate Auckland
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