Rental abatement - new rules

By Max Gunawan, Platinum Legal

Close observers of the commercial rent abatement issues arising from COVID lockdowns in 2020 will be attuned to the arguments from both sides of the table. Commercial tenants argue that rent should be abated (reduced) to the extent that their business has been affected by the COVID lockdowns. Landlords then argue that the lockdowns are the tenants' commercial risk which they should bear alone.

It was an unusual legal landscape. On the one hand, there were the tenants who had the fairly recent versions of the ADLS leases which contained "clause 27.5". In essence, the clause allows the tenant to assert an abatement of rent where their access to the premises have been adversely affected. These tenants found they had legal grounding to negotiate rental abatement with their landlords.

Those that did not have "clause 27.5" in their ADLS leases, or did not have the ADLS leases at all quite often had to rely on both parties agreeing to a rent abatement. It was messy. There were a lucky few that reached a deal and avoided litigation. Others were not so lucky. Some landlords refused any form of rental abatement. Some tenants stopped paying rent altogether. It was a messy situation that, in a lot of cases, precipitated legal proceedings.

Reprieve may be round the bend. As at the date of writing this blog, legislation is intended to be introduced to Parliament, which would effectively incorporate a "clause 27.5" equivalent (which appears to only apply to COVID-19 lockdowns) into all commercial leases. My understanding is that the implied clause will only apply to those leases where there is not already an agreement for dealing with rent during COVID lockdowns.

If the law comes into effect, both landlord and tenants will have a legal framework to approach the negotiating table. In the best case scenario, it will bring much needed certainty in an area of law which has caused contention, and hopefully reduce preventable litigation. It might also be a sigh of relief to tenants whose landlord who have refused to engage with their request to abate their rent.

I will provide a further update when the bill is passed.

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