Franchise Management
LEASES & LA Paul Turner and Scott Goodwin of Goodwin Turner Commercial Lawyers offer some notes for franchisees regarding leases
T
he initial Covid-19 lockdown a year ago, and the various changes of alert levels since, have caused a lot of franchisors and franchisees to examine their lease agreements. While many landlords have been prepared to offer some form of rent relief to tenants who were locked out of their premises or otherwise had only restricted trade, others have insisted on receiving full rent or only minimal reductions. As a result, we have been involved in many more lease negotiations and disputes than might typically be expected otherwise. Our experience is that the following things vary greatly: • What particular leases say about this sort of “no access” situation; • How different people might read and interpret the same clause in a lease; and • What people think is ‘fair’ in a given situation (we often find that people seem to lose a degree of reasonableness or objectivity, and push for more extreme positions when they’re under stress). We’ve had good success at helping clients resolve disputes in this area, and one benefit of being in a good franchise system with a supportive franchisor is that they may also be able to give you some support and guidance when things get tough. If possible, however, it’s obviously better to avoid potential disputes in the first place – and that starts with paying attention, and negotiating well, when you’re first considering entering a lease. There is no one-size-fits-all solution that will suit all franchisees and all leases, but here are some general tips for franchisees entering new leases in these Covid-19 times.
Pay attention to the form of lease The most recent ADLS forms of lease have had the clause 27.5 which tenants have wanted to rely on. This states: If there is an emergency and the Tenant is unable to gain access to the premises to fully conduct the Tenant’s business from the premises because of reasons of safety of the public or property or the need to prevent or overcome any hazard, harm or loss that may be associated with the emergency including: … (c) Restriction on occupation of the premises by any competent authority. Then a fair proportion of the rent and outgoings shall cease to be payable for the period commencing on the date when the Tenant became unable to gain access to the premises to fully conduct the Tenant’s business from the premises until the inability ceases. Other forms of lease are often created more by landlords and as a result, are more ‘landlord-friendly’. Many of these haven’t had a clause equivalent to the one in the ADLS document, and tenants have been disappointed to learn that they had no contractual entitlement to a rent abatement even in more severe lockdown situations.
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Franchise New Zealand
Autumn 2021
Year 30 Issue 01
