What outgoings (if any) are Tenants liable to pay during the COVID-19 lockdown period?

17 Apr 2020
Author: DTI Lawyers

This article follows insights into “Commercial Leases during the COVID-19 lockdown”; an article which focused on clause 27.5 of the Auckland District Law Society (“ADLS”) Deed of Lease, sixth edition 2012 (5) and adjusting rent during the Level 3 and 4 lockdown periods [1]. We understand that the lockdown period has also raised a lot of uncertainty and questions around what outgoings Tenants are liable to pay during this period. This article addresses those key issues.

We will again look at the Auckland District Law Society (“ADLS”) Deed of Lease, sixth edition 2012 (5) (“the Lease”) to see what outgoings Tenants are liable to pay, in what proportion, and the potential for outgoings payments to be varied during the lockdown.

Clause 3.1 of the Lease states:

The Tenant shall pay the outgoings properly and reasonably incurred in respect of the property which are specified in the First Schedule. Where any outgoing is not separately assessed or levied in respect of the premises then the Tenant shall pay such portion of it as specified in the First Schedule or if no proportion is specified then such fair proportion as shall be agreed or failing agreement determined by arbitration.

The Landlord also has the power to vary the proportion of any outgoing to ensure that the Tenant is paying a fair proportion of the outgoings (clause 3.2 of the Lease).

To locate where your proportion of outgoings is recorded in the Lease, we refer you to clause 16 of the First Schedule of the Lease, titled “Proportion of Outgoings”. Clause 16 provides for two things:

  1. the proportion of the outgoings that the Tenant must pay; and
  2. an estimated amount (GST exclusive) of the outgoings payable by the Tenant under the Lease.

Often, clause 16 will state “100%” as the proportion of outgoings payable by the Tenant, and we will use this percentage for the basis of this article. The outgoings list on the same page of the First Schedule at clause 18 states which specific outgoings the Tenant is liable to pay for. Some examples are;

  • rates or levies payable to any local or territorial authority;
  • charges for water, gas, electricity, telecommunications and other utilities or services, including line charges; and
  • any insurance excess (but not exceeding $2,000.00) in respect of a claim and insurance premiums and related valuation fees. 

If there are outgoings that have been crossed out, then these items are not payable by the Tenant. 

In the event that the proportion of outgoings is not stated in clause 16 of the First Schedule, the parties need to negotiate and agree on what is a fair proportion – please see clause 3.1 above.

In the current circumstance of the COVID-19 lockdown period, and where Tenants want to vary the amount of outgoings they pay during this period, clause 27.5 of the Lease is again relevant. This clause provides relevant grounds for the parties to reduce outgoings by a “fair proportion” during the lockdown period.

As previously mentioned in my article on clause 27.5, the party (usually the Tenant) wishing to reduce the amount payable (whether it be rent and/or outgoings) will need to write to the other party and negotiate reduction of the payments by a “fair proportion”. It is important that the parties communicate with each other and negotiate in good faith, given that views may differ on what a “fair proportion” is in the circumstances.

Keep in mind that we have only looked at the ADLS Deed of Lease, sixth edition 2012 (5) in this article, and Tenant and Landlord rights and obligations in each individual scenario will vary depending on the form of their lease. If you are a Tenant or a Landlord and have questions about Tenant liability for outgoings during this lockdown period, we recommend seeking advice. Our team is more than happy to assist you with this.

If you have any questions, please do not hesitate to ask. All of the DTI Lawyers staff are working remotely and are more than happy to assist you during this uncertain time. Phone: 07 282 0174.

The information contained in this article is accurate as of the date of publication, but please note in this rapidly moving environment, you should review the DTI Lawyers website, or contact our team, to ensure it remains up to date.