Court Guidance from Lockdown “No Access” Rent Abatement Case

“No Access” lease clauses provide for an abatement of rent while the tenant is unable to access the premises. Covid-19 Lockdowns have now put such clauses in the spotlight. In SHK Trustee Company Ltd v NZDMG Ltd the High Court has now offered some guidance as to how “No Access” clauses will be applied in cases where no agreement on rent abatement is reached, rent goes unpaid and the lease is cancelled.

NZDMG leased office and warehouse space from SHK. They used the Auckland District Law Society Deed of Lease, clause 27.5 of which provides that if there is an emergency, the tenant is entitled to a suspension of all or some of the rent if they are unable to access the premises to fully conduct their business for a number of reasons, including where occupation is restricted by any competent authority.

NZDMG last paid rent on the first day of the Level 4 Lockdown. They sought an adjustment of the rent under clause 27.5, but no agreement was reached, and they stopped making payments. SHK then issued a notice under section 245 of the Property Law Act requiring NZDMG to pay the rent arrears which NZDMG did not comply with. SHK then cancelled the lease by retaking possession of the premises.

SHK subsequently applied to the High Court for a summary judgement against NZDMG and its guarantors for the unpaid rent. The guarantors opposed the application on the basis that SHK had not taken into account NZDMG’s right to rent abatement.

The Court granted the application except for amounts owing from the lockdown periods. The Court held it could not give a summary judgement for those amounts as NZDMG was entitled to an abatement of rent, and “assessing a fair proportion is an evaluative exercise that cannot be done in a summary judgement application.”

However, the Court also stated that it was arguable that the Property Law Act notice was invalid as it claimed the rent in full, with no adjustment to take into account NZDMG’s entitlement to rent abatement. This meant that SHK was arguably not entitled to cancel the lease.

This case shows that it is a risky business for a landlord to issue a notice under the Property Law Act that includes an abatement period and then use it to cancel a lease. SHK has now opened itself to a claim for damages by NZDMG for an unlawful cancellation. Landlords should rely on non-abatement periods only or instead commence proceedings to obtain judgement as to the amount owing during the abatement period.