With the numerous weeks at Covid-19 Alert levels 3 and 4, predominantly in Auckland, but now the Waikato, many businesses have been hit hard, particularly hospitality and retail. It was announced in late September that the Government was making an immediate change to the Property Law Act.
As part of the Covid-19 Response Legislation Bill introduced to Parliament, it will include measures to help businesses resolve disputes over commercial rent. It is proposed that a clause will be inserted into commercial leases requiring a “fair proportion” of rent to be paid, where a tenant has been unable to fully conduct their business in their premises due to the Covid-19 restrictions.
What is deemed ‘fair’?
The amount of rent that is considered ‘fair’ would need to be agreed between the landlord and tenant. Unfortunately, if they are unable to come to an agreement about a fair rent proportion, the next step would be arbitration or an agreed alternative dispute resolution process such as mediation.
The proposed law change will only apply to leases which do not already provide for adjusted rent payment terms during an epidemic emergency. Therefore, agreements made prior to 28 September 2021 to adjust rent obligations to reflect the Covid-19 situation would not be affected by the implied clause.
Other changes announced in mid October include:
A requirement that the parties to a commercial lease with this implied clause must respond to each other within 10 working days of communication about the clause.
Clarifying that parties may seek to resolve disputes through mediation or other forms of alternative dispute resolution before a referral to arbitration, and that the Disputes Tribunal’s jurisdiction is not excluded as an option.
The recent changes introduced to the Bill will include a requirement to consider a commercial tenant’s loss of income in determining what a ‘fair proportion’ of rent relief would be.
“This change protects against the new rent relief provisions being used where a commercial tenant has not actually had any serious loss of income as a result of lockdown restrictions because, for instance, they have been able to continue operating from home.” the Minister of Justice, Kris Faafoi says.
“These new provisions will only apply to leases which do not already provide for adjusted rent payment terms during an epidemic emergency to ensure, in particular, that small businesses get the relief they need when COVID-19 response restrictions prevent them being able to access their premises,”
Leonie Freeman, CEO of Property Council New Zealand is a huge advocate for industry and government working together to solve problems. It is the basis for so much of what Property Council does, and in her view it’s the only constructive way to tackle big issues without triggering a ripple effect of unintended consequences. It’s hard to argue that statement – the government appear to be the only ones who did not foresee the healthy homes legislation, which targeted at a very small number of rogue landlords, has created a significant rise in the cost of residential rental accommodation for all.
October’s announcement that the Government will be proceeding with the planned changes to the Property Law Act – a move that Leonie believes completely undermines the sanctity of commercial contracts, by inserting a clause into every commercial lease in the country that neither tenant nor landlord has agreed to – is simply staggering. A problem is solved by continuing to find solutions.
As they say “what goes around, comes around” – Landlords and Tenants and how they treat each other, will over time experience the consequences or benefits of their actions.
It’s difficult to see who will benefit from the legislation, as landlords and tenants have in the majority of cases, worked constructively towards outcomes that benefit both parties. I know of instances where landlords have agreed to provide rental relief in exchange for an extension to the current lease term.
Interestingly, this time around with the Delta lockdowns, there have been significantly fewer requests for assistance, although businesses now have a far clearer picture of what is in store for them post lockdown – however, while we probably all have lists of items that we need to purchase once we get to Level 2, some service and retail businesses will never be able to compensate for lost trade – it’s hard to make up for the missed haircuts.
There are too many questions unanswered with the new legislation. How will businesses under a single company entity, deal with the different operations or divisions of their business? – some of which may be able to trade in one part of the country but be in lockdown in another, some of which have an online presence and others which do not, all good reasons to continue to let landlords and tenants work through the solutions on a case by case basis.
It must also be remembered that not all landlords are in a financial position to be able to support their tenants with rent relief for extended periods of time, and with mortgage rates starting to rise, the pressure is surely starting mount on property owners and landlords alike.
