COVID-19 Alert Level 4: practical tips for businesses

Friday 27 March 2020

Authors: Tim Clarke, David Friar, Jane Holland and Tania Goatley

​With New Zealand now on lockdown under Alert Level 4, we look at some of the practical issues that businesses will need to consider, including whether they can continue to trade, the implications for leases and the payment of rent, insurance cover, and employment obligations.

Key points

​Are you an essential business?

 

Unless you are an essential business or one that supports them, you must close your premises.

The line between essential and non-essential businesses is not always clear.

Are tenants required to ​​pay rent?

Some (but not all) leases contain rent abatement clauses that may allow a tenant to avoid paying rent if they have been required to close their premises.

The precise requirements of these clauses differ between leases. 

Will insuranc​​e apply?

Review your policies carefully. However in most cases there will be an exclusion for notifiable or infectious diseases.

What are the employ​ment implications?

Essential businesses and businesses operating with employees at home should continue to pay employees in the ordinary way.

The law is not clear for non-essential businesses whose premises are closed and whose employees cannot work from home.

Is government support availa​​ble?

We set out details below of the government support packages that are available.​

Are you an essential business?

To give effect to the Alert Level 4 lockdown, the Director-General of Health has ordered that all businesses must close their premises. The only exception is for “essential" businesses. An essential business is one that is essential to the provision of the necessities of life (including food, medicine, healthcare, energy, fuel, waste-removal, internet and financial support), and those businesses that support them, as described on the Essential Services list published by the government.

That list sets out the business sectors which are deemed essential, with additional clarifications, exemptions and exclusions within each of those sectors. Only those businesses are permitted to operate during Alert Level 4, and they can only do so if they have appropriate mechanisms are in place to minimise any risk of COVID-19 transmission. This list is constantly evolving, and is continuously refined as the government firms up its position on which businesses and services (and parts within those businesses) are essential at this time. The current version of the list of essential businesses is available here (as at 7:30pm 26 March 2020).

In many cases, it can be difficult to determine with certainty whether, or to what extent, a business provides an essential service. That is particularly the case where the business in question is part of a supply chain rather than performing the essential service itself, or where its categorisation depends on the classification of its contracting party as an essential service. In addition, sector specific registration schemes are being introduced to ensure that essential businesses are registered and have plans in place to ensure social distancing while delivering their services.

Given the potential consequences for continuing to trade in breach of the Level 4 requirements, businesses that are uncertain as to whether they are essential services should seek legal advice.

Are tenants required to pay rent?

Both landlords and tenants need to be aware of what their leasing arrangements say about rent suspension during an Alert Level 4 lockdown. Many older leases may not address this issue. Newer leases may provide for a rent suspension if the premises become inaccessible due to an act of a civil authority, but the precise requirements will differ between leases. It is critical that landlords and tenants carefully review the relevant terms of their leases, and obtain legal advice if necessary.

If you are a tenant who is not entitled to a rent suspension, you should consider getting in touch with your landlord, as your landlord may be prepared to discuss a concession such as deferral of some of the rent until a later date. However, tenants should be aware that, in engaging with landlords, they should not threaten or take action that could be seen to repudiate or breach the terms of their lease.

Landlords engaging with tenants in these circumstances should consider how to frame the terms of any rent relief, to ensure that the unpaid rent can be recovered at a later date.

Will insurance apply?

Many landlords will have loss of rent insurance cover. They should review their policies carefully. However, landlords should be aware that most policies have an exclusion for any loss arising in connection with a notifiable or infectious disease.

Many tenants will also have business interruption cover, which provides cover for lost profits in certain circumstances. Again, however, these policies typically contain a notifiable or infectious disease exclusion.

What are the employment implications?

Businesses that are “essential services" (such as supermarkets and pharmacies) can remain open, but businesses providing non-essential services need to be aware that staying open and requiring staff to work in contravention of the Alert Level 4 could result in a significant fines, together with the potential for imprisonment for individuals.

Businesses have been grappling with questions about whether they are required to pay staff during the Alert Level 4. The division between “essential" and “non-essential" services has implications for employee's pay during a lockdown. If your business is an essential service, then any employees who continue to work should be paid in the ordinary way. Similarly, if your employees can work from home (whether or not you are an essential service, and including if your business remains shut), they should be paid their usual salary or wages.

Where your employees cannot work from home, and your business is shut, the position is far from clear. We are seeing many employers being flexible in their approach, but their ability to do so will of course depend on their particular circumstances. Given that the legal position is unclear, legal advice should be obtained in relation to the employer's particular circumstances.

Is government sup​port available?

The government has introduced a wage subsidy scheme to provide financial assistance to employers to meet their salary and wages bill over a 12-week period. The primary purpose of the scheme is to ensure that businesses retain their staff. While previous restrictions (relating to a cap in the total amount that an employer can claim) have been lifted, there are still a number of pre-qualifications which must be met before employers are eligible to apply for the subsidy. Importantly, the employer must face the prospect of a 30% decline in revenue, and the company must make their “best efforts" to pay their employees at least 80% of their income.

The information available about the scheme in factsheets and on-line guidance is limited and leaves many questions unanswered, and further details emerge each day. As this is an unprecedented situation, the position continues to evolve and is subject to change. The current factsheets and guidance are here.

If you require any advice about these issues, please get in touch with the contacts listed or your usual Bell Gully advise​r.

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

To receive all Bell Gully's updates on COVID-19 you can subscribe here.​


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
  • Tania Goatley

    Partner Auckland
  • Tim Clarke

    Partner Auckland
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