Most businesses will have found that at some stage during Covid-19 lockdowns they have not been able to their offices or other premises to run their businesses.  Many tenants have approached their landlords for rent reductions during lockdowns, with some reductions granted, and some not.  This has created much stress and uncertainty for landlords and tenants alike.

On 3 November 2021 the Property Law Act was amended to insert an implied term into existing commercial leases to require tenants and landlords to negotiate a reduction of a fair proportion of rent and outgoings when there is an epidemic and the tenant is unable to gain access to all or any part of the leased premises to fully conduct their operations, because of health and safety reasons relating to the epidemic.

The implied clause only applies if a lease does not have a “no access in an emergency” clause that covers an epidemic already.  The most common form of lease, the Auckland District Law Society Deed of Lease, for example, has a “no access in an emergency” clause in it, so this will not apply to those forms of leases.

The new law does not apply to previous lockdowns, but covers the period since 18 August 2021 until the legislation is repealed.  It will not apply if you have already (before 3 November 2021) agreed a rent variation agreement to cover that particular period.

Reducing rent by a ‘fair proportion’

This does however still leave tenants and landlords open to negotiate what is a ‘fair proportion’ of rent and outgoings.

Determining what a ‘fair proportion’ is depends on the individual circumstances of the tenant and landlord.  What constitutes a fair proportion may change over time as the Alert Level/traffic light system changes depending on how much of the business can be run as those levels change.

The only factor that the new legislation requires to be taken into account, when assessing what a fair proportion is, is the loss of income experienced by the tenant during that particular period.

Other factors that we consider are relevant include:

  • The extent to which the tenant is still using the premises for some purposes (for example, partly for essential services);
  • Balance of the term of the lease;
  • Nature of the premises and the proportionate change in use and enjoyment of them;
  • Whether the tenant is able to conduct business remotely (also taking into account its use of servers/equipment at the premises (benefit from the premises) and storage of items at the premises);
  • Value inherent in the premises (for example, fit out, storage, goodwill, business continuity);
  • Rights of termination if the non-access continues (noting most leases provide for 9 months in this regard);
  • Tenant’s ability to continue to run its business after the restrictions are lifted (ie: the viability of the business going forward);
  • the financial position and commitments of the landlord (for example, is the property mortgaged?);
  • The financial position of the tenant;
  • The landlord’s costs in holding and managing the property (for example, the landlord’s mortgage obligations and other costs such as ground rent); and
  • What is a ‘fair proportion’ may differ as between the rent and outgoings

The position as to what will be considered a fair proportion of rent and outgoings will be unique for each tenancy and the parties to it.  Some landlords and tenants may choose to make other arrangements such as earlier termination, or deferrals of payment of rent.

What if you can’t agree?

If you can’t agree as to whether this clause applies to your lease, or what is a fair proportion, you can refer the matter to mediation or arbitration, or try to use another means such as using expert determination whereby an expert can help determine what would be a fair outcome.

Contracting out of the implied clause

The parties to a lease can choose to contract out of the implied clause, provided their lease is signed after 18 August 2021.  If you are contracting out of the clause we recommend including an explanation as to why you are doing so.

We would not recommend doing this without taking legal advice.


It is important for all tenants and landlords to be aware of this change, especially when entering into new leases.  If you are unsure about your obligations, you should take advice from an experienced legal advisor.