Proposed New Implied Term in Commercial Leases

The Government has proposed an amendment to the Property Law Act 2007 as part of the Covid-19 Response (Management Measures) Legislation Bill. The amendment will have significant implications for landlords and tenants of commercial property.

If passed into law, the amendment will add an implied term into commercial leases. The term will require that a fair portion of a tenant’s usual rent will cease to be payable for the period when a tenant is unable to fully conduct their business due to the Covid-19 restrictions. In this context, a tenant’s usual rent will include any contribution to the outgoings of the premises that are payable by the tenant.

In determining a fair portion of rent, the parties must take into account what changes have already been made to the tenant’s usual rent for the period 18 August 2021 to 27 September 2021. If the parties fail to agree on an appropriate rent reduction, they will be required to attend arbitration unless they have already agreed on an alternative process such as mediation.

It is also important to note that the implied term will only apply to leases which do not already have a “no access in an emergency” clause that covers an epidemic.

When entering into a new lease, parties can also expressly exclude or extend the new implied term.

It is intended that the new term will be implied into leases as from 28 September 2021 until the Epidemic Preparedness (Covid-19) Notice 2020 expires or is revoked.

Are you a landlord or tenant where you are unable to reach agreement on rent abatement?

If you would like to know how the change may affect you, please get in touch with our Commercial Team.

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