To abate, or not to abate … that is the question

27 September 2010

To abate, or not to abate … that is the question

As Cantabrians gradually recover from the earthquake, tenants and landlords of damaged property are wrestling with the twin questions of how much should rent be abated and who decides on the amount. Richard Lang, a commercial property specialist at Duncan Cotterill, looks at the issues.

When a tenanted property has suffered partial destruction or damage and until repairs or reinstatement have been completed, a fair proportion of the rent and outgoings should abate or cease to be payable. This is set out in the standard form from the Auckland District Law Society Deed of Lease and the Property Law Act 2007.

The key question is, what proportion of rent and outgoings is a fair proportion to abate?

The onus is on the tenant of a partially destroyed property to show what they consider to be a fair amount. This will be a question of fact in each case. What is clear is that a tenant should not simply stop paying rent or withhold rent without explanation. A tenant should also not unilaterally decide what proportion of rent they consider should cease to be payable.

A sensible approach by a tenant would be to notify their landlord of the partial destruction of the property and the extent to which this affects its operations. The tenant would also be wise to obtain a valuation from a registered valuer assessing the reduction in rental. Once a tenant has obtained that assessment, the report could be provided to the landlord to support what fair proportion of rental the tenant believes should be abated.

In assessing what a fair proportion would be, a valuer would consider not only the area of the property which has been damaged, and the degree to which it has been damaged, but also the significance of the affected area to the tenant's business. For example, damage to a customer area of a retail tenanted property may have considerably more impact on the tenant than damage to the same sized area from a staff or storage area of the same property. This may then justify a higher proportion of the rent being abated.

Communication and co-operation between a landlord and tenant are key to working through what, if any, rent abatement is available. Hopefully, landlords and tenants and their respective valuers can agree on a rental abatement, but if not, both parties have a right under the Auckland District Law Society lease to go to arbitration.

Finally, there are also many instances of a tenant being unable to gain access to undamaged property because the tenant's premises are located within an area cordoned off due to damage to a neighbouring property. In this situation, the Auckland District Law Society lease provisions on rent abatement will not be relevant as a landlord's obligations only extend to their property, and the tenant's inability to access the property is not an issue between the tenant and their landlord (unless the neighbouring property is owned by the same landlord). In this case a tenant will need to rely on any insurance they may have for interruption to their business.

Disclaimer: the content of this article is general in nature and not intended as a substitute for specific professional advice on any matter and should not be relied upon for that purpose.

Richard Lang, is a partner and commercial property specialist at national and trans-Tasman lawyers Duncan Cotterill. r.lang@DuncanCotterill.com

Location http://www.duncancotterill.com/index.cfm/1,159,635,0,html