The period during which commercial landlords can cancel leases for non-payment of rent has been extended from 10 to 30 working days.
The intention is to give tenants longer to remedy breaches or negotiate temporary changes to rent or lease arrangements. The package does not go as far as many were anticipating and, in our view, does not go far enough to deliver a meaningful outcome in terms of business survival rates.
Periods run concurrently
To cancel leases for non-payment of rent:
- the rent must unpaid for no less than 30 working days (up from 10 working days), and
- the landlord must have served notice of the breach, and allowed a period of not less than 30 working days (again up from 10 working days) to remedy it, and
- the breach must not have been remedied by the end of the notice period.
A commonly overlooked provision of the Property Law Act 2007 allows for the default period and the notice period to run concurrently with the effect that landlords can serve a default notice before the tenant has been in default for the specified period (now 30 working days).
The Government statement announcing these changes confuses this issue but it is clarified by the information available on the Ministry of Justice website.
When will the changes apply?
The changes will apply retrospectively to all lease cancellation notices:
- from 10 working days after the Epidemic Preparedness (COVID-19) Notice 2020 came into effect on 25 March 2020 (i.e. 8 April 2020)
- to 6 months after the expiry of the Epidemic Preparedness (COVID-19) Notice 2020 which is currently due to expire 3 months after commencement (i.e. 24 December 2020).
Legislation enacting these changes will be introduced on April 27 and will apply retrospectively.
Default notices must be served in a manner compliant with the requirements of the Property Law Act 2007 for lease cancellation to be effective. While the country is in Alert Level 4 lockdown, practically achieving service of notices on individuals may be challenging.
However, service of a default notice on a company can be completed by:
- posting it to the company’s registered office, address for service or delivering it to the company’s document exchange box
- emailing it to the company at an email address that is used by the company
- faxing the notice to the fax number for the company’s registered office or address for service or its head office or principal place of business
- by delivery to a named director on the Companies Register
- by delivery to an employee of the company at the company’s head office or principal place of business
- by leaving it at the company’s registered office or address for service, or
- by serving it at an address for service or to a solicitor where that solicitor has stated it will accept service.
There are slightly different service methods applicable for individuals, overseas companies, the Crown and other entities.
Tenants that have not paid rent in full should ensure they are monitoring the various places a default notice could be served while they are not operating as usual during the COVID-19 alert levels. Landlords should always ensure that they have proof that any default notices have been served correctly.
Chapman Tripp comment
While these changes give parties longer to discuss a solution for rent payments, they do not provide relief from rent payment obligations as had been foreshadowed by earlier government announcements and will not prevent otherwise viable businesses from going to the wall where the parties cannot reach or agree to a mutually acceptable solution.
The contacts listed can assist with any leasing issues your business is encountering due to COVID-19.
This is one of a series of Brief Counsels Chapman Tripp has produced on COVID-19. See the full list of COVID-19 releases here.