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As a commercial tenant, there may be instances that prevent your business from getting the full potential out of your premises. In such circumstances, you may be able to negotiate with your landlord to engage the rent abatement clause in your lease. This article will outline:

  • what rent abatement is;
  • what a fair proportion of rent and outgoings is; and 
  • the steps you should take when negotiating rent abatement with your landlord.

What is Rent Abatement?

Rent abatement refers to the procedure of reducing the cost of a tenant’s rent and outgoings or providing rent relief during particular periods. During these periods, you will not have to pay a fair proportion of your usual cost of rent and outgoings. These periods tend to be during:

  • an emergency that prevents you from accessing your premises; or 
  • the rebuild or repair period following damage to your premises. 

Emergency Preventing Access

If an emergency occurs that prevents you from accessing your commercial premises, it may relive you from paying a fair proportion of your rent and outgoings. This emergency may be:

  • a natural disaster, such as an earthquake, tsunami or volcanic eruption;
  • extreme weather, such as a storm or tornado; 
  • a man-made disaster, such as a serious fire or spillage of a dangerous substance; or 
  • an outbreak of a serious disease. For example, the COVID-19 pandemic is an emergency that has warranted rent abatement.

These emergencies do not have to have caused any damage to your leased premises. Instead, it has to have the potential to endanger your safety, the safety of the public or the leased property. To define an event as an emergency, it cannot be caused by you or your landlord’s conduct.

Damage Preventing Access  

If there is damage to your commercial premises, it may entitle you to relief from paying a fair proportion of your rent and outgoings. You are entitled to this adjusted rent whilst the property is under repairs, and you are unable to access the premises. However, if the damage is so significant that it renders your commercial premises untenantable, it will likely terminate your lease. 

What is a Fair Proportion of My Rent and Outgoings?

There is no fixed percentage or method to determine what is a fair proportion of your rent and outgoings. A fair proportion will vary between tenancies and circumstances. You and your landlord will ultimately determine the amount of rent abatement that is appropriate for your situation. However, there are certain factors that you should take into account when determining this amount. These factors include:

  • your business’ loss of use of the premises; 
  • your business’ financial position; and
  • the financial position of your landlord. 

Loss of Use of the Premises

You have to pay rent and outgoings to access commercial premises and the benefits that accompany that space. When you cannot use these premises properly, due to an emergency or damage outside of your control, this should entitle you to reduced costs. However, in determining these costs, you will have to clearly articulate the true loss of the use of your premises. You will have to consider:

  • what business activities you can continue to carry out whilst your premises are inaccessible;
  • what business activities you are prevented from doing whilst your premises are inaccessible; 
  • the weight that should be given to this inability to carry out certain activities. For example, say a cafe gets damaged due to severe weather and has to undergo multiple months of repairs. During this period, the cafe may lose some of its customer base to a different cafe in the same area, which reduces its overall earnings when they reopen. In such circumstances, the loss of use of the premises holds a large amount of weight as it had long-term ramifications on the business; and
  • the period that the premises will be inaccessible.

Financial Position of the Tenant and Landlord 

You will also have to consider both your own financial position and the financial position of your landlord. You may wish to consider:

  • whether you or your landlord have insurance or cover that could assist you whilst you cannot access the premises. For example, your landlord may have ‘loss of rent’ cover, or you may have interruption insurance that is engaged by your current circumstances. If a party does have insurance that can assist them, it is reasonable for them to bear the greater portion of rent and outgoings; 
  • your current price of rent and outgoings. If this price is high or cheap will influence the amount that your rent and outgoings should be reduced by; and
  • the solvency position of your and your landlord. Will your landlord go insolvent if they have to bear the greater portion of rent and outgoings?

Before you enter into negotiations for rent abatement, it is best practice to check to see whether there is an abatement clause in your commercial lease. If there is no such clause, you will likely be unable to negotiate a reduction in your rent and outgoings. However, there may be circumstances where such a clause is implied in your lease.

How to Negotiate Rent Abatement

For example, during the COVID-19 pandemic, rent abatement clauses were implied into commercial leases to assist businesses who were unable to operate during alert level restrictions. 

You should also ensure that your current circumstances prompt your rent abatement clause, such as a natural disaster that causes damage to your premises or prevents you from accessing the property. 

Once you have looked through your lease, you can now begin negotiations with your landlord. The first step you should take is finding an interim payment arrangement. This arrangement will be in place until you decide what a fair proportion of your rent and outgoings is. You and your landlord must agree that this arrangement does not prejudice your negotiations of what a fair proportion is. 

In determining what a fair proportion is, you should use the above factors alongside any other relevant elements to you and your landlord. If you cannot agree, you may have to engage in an alternative dispute resolution process, such as arbitration, to determine what a fair proportion of your rent and outgoings are.

Key Takeaways

If you are unable to access your business’ premises due to an emergency or damage, you may be able to apply for rent abatement. Through rent abatement, you are relieved from paying a fair proportion of your rent and outgoings for the period of inaccessibility. In negotiating what this fair proportion is, you should consider:

  • how this inability to access the premises has impacted your business;
  • your business’ financial position; and
  • the financial position of your landlord. 

If you need assistance in negotiating rent abatement, contact LegalVision’s property and leasing lawyers on 0800 005 570 or fill out the form on this page.

Frequently Asked Questions

What is rent abatement?

Rent abatement refers to the procedure of reducing the cost of a tenant’s rent and outgoings during a period of inaccessibility, usually due to an emergency or damage to the property. The tenant will be relieved from paying a fair proportion of their rent and outgoings. 

What is a fair proportion of rent and outgoings? 

A fair proportion of rent and outgoings will vary between different tenancies and circumstances. However, this amount should be determined by the tenant’s loss of use of the premises, their financial position and the financial position of their landlord. 

When am I entitled to rent abatement?

An emergency, such as a natural disaster, extreme weather or the outbreak of a disease may entitle you to rent abatement. Or, if your leased premises have been damaged and require repair.

Can I get rent abatement because of COVID-19? 

During Level 4, the New Zealand government implied rent abatement clauses into commercial leases to assist businesses who were unable to operate due to alert level restrictions. If you are unable to operate or access your business due to COVID-19 restrictions, you may be able to imply a rent abatement clause into your commercial lease. 

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