Temporary amendment to Property Law Act will require 'a fair reduction' in rent where a business has suffered a loss of revenue because of COVID-19

Temporary amendment to Property Law Act will require 'a fair reduction' in rent where a business has suffered a loss of revenue because of COVID-19
Image sourced from Flickr

Commercial property owners will be made to negotiate rent reductions with tenants that have suffered a loss of revenue due to COVID-19.

The Government has agreed to temporarily amend the Property Law Act, inserting a clause with this requirement.

Should property owners and tenants fail to come to an agreement, arbitration will be mandatory.

The Government will provide a $6000 subsidy, which is expected to cover about 75% of the arbitration cost.

The new clause in the Act will only apply to New Zealand-based businesses that have 20 or fewer full-time staff at each leased site. It won’t apply to businesses that have an overseas head office or are part of an overseas-based multi-national.

Commercial property owners and businesses that have already agreed to rent changes in response to COVID-19 won’t have to follow the new process.

The change will apply from today for a period of six months after legislation is passed.

It is expected to cost taxpayers up to $40 million.

Justice Minister Andrew Little, on Morning Report, conceded he would’ve liked to have seen the Property Law Act amended earlier, but New Zealand First held this up.

It was concerned the change goes against the legal principle of sanctity of contract, because it adds contractual terms and obligations to leases that parties don’t mutually agree to.

Little said concessions were made to reach agreement around the size of the businesses that will be able to negotiate rent.

In a paper presented to Cabinet, he said it was unclear how many landlords and tenants were struggling to agree on rent relief.

However he noted: “Re-leased, a cloud based commercial property software firm that manages invoicing and payments for more than 10,000 commercial properties including 35,000 leases around the country, has released data based on 800 properties indicating that one-third of commercial tenants did not pay rent in April.

“Rent from the retail sector was down 53% and office and industrial rents down by around a third. It is not clear from this data how much of this unpaid rent is the result of rent reduction agreements between landlords and tenants, though Re-leased notes that there was a 430 per cent increase in the number of credit allocations by 1 April 2020 (these notes are commonly used to waive part or all of a rent payment).”

The Cabinet paper said the exact wording of the clause to be added to the Property Law Act was yet to be determined.

It specified a middle ground that could be reached between landlords and tenants could include: no rent being payable for a period, reduced rent being payable for a period, rent deferment, a scheduled rent increase being deferred, rent continuing to be paid unabated, or a mix of these options.

It said the legislation will clarify how parties should determine how to fairly share the cost. This guidance will be based on the principle that the interests of the lessor and the lessee should both be taken into account.

Little said this could include the impact of COVID-19 restrictions on the business, even if these restrictions are no longer in place, mortgage obligations relevant to the leased premises, financial support available to them, revenue and profit levels in recent years, and differences in size and resources between parties, for example.

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13 Comments

So the taxpayer pays for arbitration, yet there's no clarity about what outcomes should be expected other than it needs to be 'fair' (how obvious!) .... sounds like a legal subsidy ... lawyers will love it.

Yeah Tax payers pay for everything that government is generous about.

Opprtunity of a lifetime for Labour in election year to throw lolies and win.

More to come.

Wow, more red tape. Will be interesting to see how many disputes head to arbitration as you would think most parties would want to come to some sort of arrangement before this.

Given we've had three months of lockdown and three months of suppressed trading, this is entirely stable door stuff. Reminder: Robertson hinted at commercial rent action in Week 2 of Level 4. It's taken this long.

Yes it's largely irrelevant now. But in fact, may do harm.

14
up

God, what a mess they've made of this. Announcing for weeks that they were looking into it, which just caused confusion for everyone.

And now they've come out with an announcement which means very little.

I think they just needed to keep the hell out actually.

How many businesses that own their own premises are wishing they could somehow be handed such a benefit right now? Seems a bit perverse.

Classic Labour, sticking their noses in where they have no idea. The risk is already on landlords. Commercial landlords carry a huge risk of losing a tenant if they keep their rents at normal levels. They should know what they're doing. It usually takes much longer to tennant a commercial property than residential by months and sometimes years. The edge cases trying to sort this out are likely to be vast and stretch out for ages. $40m will only just scratch the surface.

Our tenant has no right of claim under the lease... makes 4 x more money than us, with a tiny investment in comparison... they experienced a drop over 2 months of 50 percent approx which equates to 8 percent over one year. They even got 45k wage subsidy but still wants us to subsidize them. How does that work?

This is totally nuts. Virtually all commercial leases have arbitration clauses in them that allow any (note) matter to be the subject of a dispute to be solved by an independent arbitrator if the parties fail to agree.
So what does this new idea provide? Nothing except have the arbitrator become a Government paid lackey.
The real problem is that the Socialists who run this country would rather cut their wrists than do anything for landlords as has been demonstrated so well over the past 3 years.

$8k for mediation paid to a third party by the taxpayers!
Surely that $6k would be far better off in the tenant or landlords pocket?
Total incompetency coming from a government that is just out of their depth with any business decision!

Plus gst makes it 7k. Complete and utter stupidity but you know they will get re elected.

$6k should just about pay for legal / Arbitrators first day costs . Who pays all the rest ?