Covid-19: Leases and Insurance Cover

The Government’s measures for Covid-19 Alert Level 4, which include that non-essential businesses can only operate to the extent that employees can work remotely from home, have left many businesses and commercial property owners with questions about lease obligations and the potential for insurance cover.


A question that is frequently arising is whether businesses classified as non-essential need to keep paying rent if they are not able to operate from their business premises during the Level 4 Alert period. 

The answer to this will very much depend on the terms of your lease. For example, a recent version of the Auckland District Law Society’s standard Deed of Lease contains a clause dealing with lack of access to the premises during an emergency which provides that a fair proportion of the rent ceases to be payable while the premises cannot be accessed.  This clause is likely to apply to premises that cannot be accessed and occupied during the Level 4 Alert period.  Other leases may also contain terms that may operate to suspend or vary the obligation to pay rent during the lockdown period.

Some businesses may prefer to bring their lease to an end.  Again, whether this is possible will also depend on all the terms of your lease. 

Another potential basis for a tenant to seek relief from its lease obligations is the doctrine of frustration.  Read about how the doctrine of frustration works here.  At this stage it is unlikely that a business being unable to operate from its premises during the Level 4 Alert period will mean that a lease has been frustrated.  It would at least require the lockdown period to involve a significant proportion of the entire term of the lease. 

The first step to understanding your options is to know what the terms of your lease are.  Early engagement with your landlord is also advisable.  If you reach agreement to vary any of the terms of your lease, it will be important to record it in writing.


Another common question is whether commercial property owners will be insured for loss of rents if their tenants are not required to pay rent.  There is also the question of whether businesses will be insured for loss of profits during the lockdown. 

Unfortunately, the answer to both questions is probably not. 

Insurance cover for loss of rents and loss of profits would be provided by a business interruption insurance policy.  However, business interruption insurance is designed to respond when damage to property causes an interruption to the business.  Many business interruption policies do contain extensions to cover for interruptions that do not involve property damage.  A common, and potentially relevant example is an extension for interruptions resulting from the closure of the premises by order of a civil authority.  However, business interruption policies are frequently also subject to an exclusion for losses caused by infectious disease, which would include Covid-19, and be likely to operate to exclude any claim entirely.

However, there may be exception to this, so you should check the wording of your particular insurance policy. 

Please contact us to discuss any of these issues.


Keely Marbeck


027 439 5385

Karen Welsford

Special Counsel

027 531 1795