Insights, Law Changes, Property

Rent Abatement Provision Passed

On October 28, Parliament passed the COVID-19 Response (Management Measures) Legislation Bill. It contained a provision that implies clauses that entitle tenants to an abatement of rent when they cannot access their premises to fully conduct their business during an epidemic (e.g. in a COVID-19 lockdown) into leases that do not already contain such a clause. We have already outlined the Government’s proposal of a rent abatement provision here, but the final product of the Parliamentary process differs in a few key ways from what was proposed. Here we detail the changes that were made and how the provision will work in the final form in which it has been passed.

The most significant change is the inclusion of a direction that, when deciding what proportion of rent abatement is “fair”, the parties must consider any loss of income experienced by the tenant during the particular Alert Level due to the epidemic and the tenant’s inability to access all or part of the premises to conduct their business.

The originally proposed provision contained no direction on how to determine what proportion of rent abatement was “fair”, so the inclusion of this direction is an improvement. However, it still leaves some open questions. Importantly, it does not specify whether the loss of income is the only factor that must be taken into account, or one of many. For example, it is unclear whether a tenant whose revenue is not impacted by the epidemic because their staff can work remotely will be entitled to any abatement. Also, retail businesses that experience loss from being unable to access their premises may argue that they are entitled for the abatement to be based solely on this loss, while their landlords may argue that other factors, such as the expected up-tick following the removal of restrictions, should be taken into account. These issues will likely have to be worked out by the courts.

Another change is the timing of the clause. Initially proposed to apply from 28 September 2021, it will now apply from 18 August (the date the Level 4 lockdown commenced) for the period of inaccessibility from that date. Parties will also now have to respond to any communication regarding the application of the clause within 10 working days.

Finally, while arbitration remains the default option for dispute resolution, now if both parties agree they can seek to resolve disputes by some other method e.g. mediation.

The rent abatement provision will have a significant impact on how rent is to be determined during the pandemic for parties to tenancies that do not already contain rent abatement clauses. For advice on how this legislative change may affect you, please get in touch.