Summer Flooding - Some relief for businesses?

Wednesday 1 February, 2023

The recent weather in Auckland and the top half of the North Island has been unprecedented – Auckland City recorded more than 800% of its normal January rainfall by 31 January!  A state of emergency was declared in Auckland on 27 January 2023, with Waitomo (28 January 2023) and Northland (31 January) following.  The message in Auckland has been ‘stay home’, especially with more rain expected. What does this mean for businesses and contracts?

What if you can’t access your premises?

The current weather event has caused widespread flooding which has created multiple dangers including slips, road closures, contaminated flood water, and no running water or power. Many businesses this week will be in a position where they can’t access their premises, whether because the premises have suffered flood damage, or because flooding has closed roads and affected public transport.

Clause 27.5 of the 6^th edition of the Auckland District Law Society lease allows for a fair proportion of rent and outgoings to cease to be payable where there an emergency and the tenant is unable to access the premises to fully conduct the tenant’s business. The definition of emergency includes a situation that is the result of a flood, seriously endangers the safety of the public or property, and is not caused by an act or omission of the landlord or tenant. Widespread flooding, or flooded premises, are an ‘emergency’ to which clause 27.5 can apply. 

The application of this clause will vary dependent on the circumstances.  There are also numerous other matters to take into consideration, including health and safety, building law and insurance. A few days of non-access is unlikely to result in a large reduction in rent and outgoings, but, sadly for some businesses, their premises will have been red or yellow stickered (i.e. access is prohibited or limited by the authorities) and it may take longer to regain access.  Landlords and Tenants should be communicating with each other and working to understand all obligations.  Tompkins Wake can advise on how the current situation may affect your business.

It is important to note that the sections of the Covid-19 Response (Management Measures) Legislation Act 2021 that amended the Property Law Act 2007 to imply ‘no-access’ clauses into leases that did not have one have been repealed.  These sections also only related to an epidemic so would also not have applied in this emergency.

What if the flooding means you can’t meet a contract deadline or fulfil a contract?

Unfortunately, the flooding is likely to have flow-on implications for commercial contracts. Contracts often have strict deadlines, and the ongoing situation in Auckland could impact on businesses’ ability to fulfil their contractual obligations. A force majeure event is an event that arises through unforeseeable circumstances that prevent fulfilment of a contract.  Force majeure provisions are common in contracts in New Zealand and came under scrutiny throughout the Covid-19 pandemic.  The purpose of a force majeure clause is to excuse a party from performing its contractual obligations, due to an event outside of its reasonable control, for the period that the force majeure event continues.  

A common force majeure event is flooding.  As previously noted, the recent flooding is an unprecedented event (particularly in the height of summer) that could not have been foreseen and was beyond the reasonable control of parties.

Parties under contracts affected by the floods will likely be looking to invoke the force majeure clauses.  It is important that you review the clause in detail to ensure that it applies, how it applies and how it must be invoked (i.e. it is common that notice must be given to the other party).

As with above, there are also other issues in play such as health and safety and delays of government bodies, such as Councils, which have responsibilities around utilisation of resources.

Tompkins Wake is able to provide advice on the implications of the force majeure clause in contracts and whether there are any other factors that may apply. Get in touch with one of our experts below for any assistance.