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Struggling commercial tenants and mortgage holders given more time to sort their affairs before landlords and lenders swoop in 

Property
Struggling commercial tenants and mortgage holders given more time to sort their affairs before landlords and lenders swoop in 
15th Apr 20, 7:02am by Jenée Tibshraeny

The Government is changing rules to buy cash-strapped tenants, commercial property owners, and mortgagees more time to remedy disputes.

Justice Minister Andrew Little said businesses may be finding it difficult or impossible to pay rent if they're no longer able to access their property. If landlords aren't receiving rent, they may not be able to meet their mortgage obligations.

Under new rules, commercial landlords won’t be able to cancel tenancies as quickly as they currently can if tenants aren’t paying rent on time or are breaching their contracts.

Instead of being able to cancel leases after 10 working days, landlords will only be able to do so after 30 working days. The clock on the 30 days will start from the time the tenant is in arrears.

The Government is also changing the rules so banks and other lenders that provide both commercial mortgages and home loans will have to hold fire before exercising their powers to repossess or sell a property they’ve lent against.

This timeframe will be extended from 20 to 40 working days for mortgaged land, and from 10 to 20 working days for mortgaged goods.

“These measures will ensure an orderly process to deal with commercial lease disputes caused by COVID-19," Little said.

The Government hasn’t implemented the same six-month rent hike freeze in the commercial market, as it has in the residential market. Nor has it gone so far as to directly help commercial tenants pay their rent. 

The Property Council, which represents a number of large commercial property investors and landlords, as well as others in the sector had argued the Government's decision to allow building depreciation as a tax deductible expense didn’t go far enough to “bridge the gap in what is becoming a crisis of cash flow for many property owners".

These rule changes follow a raft of other government support measures, including new tax rules announced today, aimed at saving businesses billions.

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21 Comments

by  Squishy  |  15th Apr 20, 7:19am 1586891967

Was this necessary? I'd have thought it would be blindingly obvious in the commercial market that tenants would be like hens teeth.

However in the case of banks I could see why they'd want to move fast on foreclosures in a falling market.

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by  JRSNZ  |  15th Apr 20, 7:31am 1586892700

Completely unnecessary interference in the market. Both parties agreed to terms when the contract was entered into.

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by  DaveB1978  |  15th Apr 20, 8:17am 1586895478

Yeah just let them both go bankrupt. It isn’t as if the country needs any businesses.

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by  Pragmatist  |  15th Apr 20, 9:42am 1586900554

If there is an unfilled demand after these companies go bust, a new company will surface to fill that need. And possibly with a sustainable cost structure after picking up the hard assets of the defunct company at liquidation prices. There is no moral obligation to keep a non-living entity on life support beyond the end of its useful life.

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by  Houseworks  |  15th Apr 20, 10:15am 1586902540

Dont you get it. The costs to set up again probably in different premises is more costly than a tiny bit of temporary govt support. Yes they should have funds set aside but halt to business is by decree not choice. And if the borders were managed properly in the first place the LD would never have happened. They were too little too late which led to going hard. More like having to go over the top for the inept govt failures. That's why we will be paying for this longterm and washing your hands is not the right call

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by  RickStrauss  |  16th Apr 20, 8:34am 1586982885

That's stating a few assumptions as fact with the benefit of hindsight.

First off, if you assume that under a complete closure of borders then no propping up would be justified, that misses that many of the same businesses would have been affected just as badly under a complete closure of borders - i.e. tourism and hospitality.

If you assume that a complete closure of borders is necessary, then you're also highlighting that an effective response to Covid-19 is not a matter of government preference or fancy, but of necessity. Thus, propping up no justified on the basis of "decree".

If it's not closure of borders, but "management" to not let sick people in, it misses that people can have Covid-19 for a significant period while being asymptomatic, before symptoms develop. So we would likely have ended up with community spread and lock down after that.

Seems to me it's less about being the government's fault necessarily, and more just about a desire for socialist bailouts.

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by  bw  |  15th Apr 20, 9:44am 1586900692

Id' be surprised if there wasn't a Force Majeure Clause in those contracts somewhere.

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by  streetwise  |  16th Apr 20, 4:30pm 1587011456

I've been a commercial retail tenant twice in my working life, so I can only speak to the retail situation. One landlord was your archetypal London cockney who was holding the property as a purely speculative enterprise. Muldoon introduced a rent freeze just before a rental increase was due and the landlord was pissed off (he told me I was getting away with murder) because he was wanting the increased valuation of the building to support an increased price for the building that he was wanting to sell for a profit.
The other was an old-family trust who owned the multi-tenanted building which was top-heavy with the property management fees, which, in my view, was sucking the landlord dry by increasing the operating expenses beyond those actually incurred but keeping the rents reasonably low.
You can't really talk about commercial rents without factoring in all sorts of other expenses for the tenant in addition to the rent.

But yes, bw, this lockdown would definitely constitute a Force Majeure by anybody's definition, if such a clause was indeed included in the lease document. (I can't remember if a Force Majeure clause was included in my leases.)

One possible solution to tenants is to either just up sticks and walk away or threaten to if the landlord won't negotiate a lower rent for the affected period whatever that may be. It would be a good idea to remove most valuable stock first if you choose the latter course. I don't think the court system would be able to cope with thousands of retailers choosing to do a runner when you consider what an absolutely ponderous unwieldy protracted expensive court system we have with the judges having to assist at every turn the 'new-school' lawyers that have been 'walked through law school' these latter years.....it would take 50 years or more to adjudicate on what is in store.

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by  murray86  |  15th Apr 20, 7:44am 1586893476

Comes down to the banks really doesn't it? Trouble is the clock isn't stopping ticking on interest accrual for anyone, commercial and residential mortgagors. But the banks can do something about this if they choose to.

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by  Houseworks  |  15th Apr 20, 8:08am 1586894904

These measures are not unreasonable given the circumstances. They are far less than indicated and a huge let-down from grant robertsons assurances and hints. Let's see if theres anything else to follow up and if not then grant should remember to promise little and deliver much and not the other way round.

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by  RickStrauss  |  15th Apr 20, 8:19am 1586895544

There's never enough socialism, eh.

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by  Keen Observer  |  15th Apr 20, 8:34am 1586896468

In good times, every neo-liberal view shall despise socialism.. BUT in bad times everyone of them will advise not enough of it (quick & large sums of handout)

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by  Keen Observer  |  15th Apr 20, 8:30am 1586896236

Well, this is to buy more time.. business may or may not be survive at all after this lock-down, their profit book projection, will have to be adjusted significantly - due to less customers, for awhile.

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by  The_4th_estate  |  15th Apr 20, 8:31am 1586896308

Interesting. Most commercial property will have some seriously deep pockets behind it and with dirt cheap liquidity sloshing around care of the low interest environment one would think the last part of the economy that needs assistance would be a commercial landlord....problem being for tenants...sometimes signing a lease with a big commercial landlord can be like signing a deal with the devil....utterly ruthless.

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by  Davo36  |  15th Apr 20, 11:12pm 1586949171

Most commercial properties are small mate. Small factories, offices, shops. Owned either by their small business owners or mum and dad investors.

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by  Glitzy  |  15th Apr 20, 8:40am 1586896852

pointless plans. if a tenant cant pay the LL either needs to strike a reduced rent deal or terminate the lease. extending the time allocated for that process simply kicks a can a few weeks down the road.

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by  RCD  |  15th Apr 20, 9:00am 1586898024

And increases the debt load for which the tenant has an absolute personal guarantee against his own property, all of which will be claimed by the landlord in the end, might as well get out early and take the smaller hit

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by  Petey  |  15th Apr 20, 9:04am 1586898296

The best scenario for a landlord is to have the tenant trading to this end some common sense rules around businesses opening up need to happen this is lacking in level 4 . A good example is giving the supermarkets a monopoly and closing smaller food businesses who are just as able to use the same rules as supermarkets. This channels all customers to the supermarkets with long ques and increasing health risks this then increases cash flow difficulties for landlords and small businesses alike .

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by  Clementé  |  15th Apr 20, 10:53am 1586904826

Interesting that the red camp doing this and all the blue rosett wearers will be screaming that they didn't do enough for businesses.. "the backbone of this country"
But i seem to remember a certain John just shrugging his shoulders and saying "Thats not for me to interfere with, I think we'll let the market sort that out"
Wonder what his actions would have been right now?

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by  waymad  |  15th Apr 20, 11:52am 1586908334

The sting in the tail is "The clock on the 30 days will start from the time the tenant is in arrears".

That could mean, for many who were stopped dead on March 25 and had not paid their rent in advance for (say) April calendar month but only till (say) March 31, that their clock runs out on 12 May.

That's not much time to organise a deep and earnest discush (with lawyers present on both sides), is it? Particularly as even assuming that the lockdown ends on (say) April 29 and everything springs back into life on that very day, there's only 10 working days to work the magic.....

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by  streetwise  |  16th Apr 20, 4:41pm 1587012114

I've been a commercial retail tenant twice in my working life, so I can only speak to the retail situation. One landlord was your archetypal London cockney who was holding the property as a purely speculative enterprise. Muldoon introduced a rent freeze just before a rental increase was due and the landlord was pissed off (he told me I was getting away with murder) because he was wanting the increased valuation of the building to support an increased price for the building that he was wanting to sell for a profit.
The other was an old-family trust who owned the multi-tenanted building which was top-heavy with the property management fees, which, in my view, was sucking the landlord dry by increasing the operating expenses,and pocketing the unused balance, but keeping the rents reasonably low.
You can't really talk about commercial rents without factoring in all sorts of other expenses for the tenant in addition to the rent.

This lockdown should definitely constitute a Force Majeure by anybody's definition, if such a clause was indeed included in the lease document.

One possible solution to tenants is to either just up sticks and walk away or threaten to if the landlord won't negotiate a lower rent for the affected period whatever that may be. It would be a good idea to remove most valuable stock first if you choose the latter course. I don't think the court system would be able to cope with thousands of retailers choosing to do a runner when you consider what an absolutely ponderous unwieldy protracted expensive court system we have with the judges having to assist at every turn the 'new-school' lawyers that have been 'walked through law school' these latter years.....it would take 50 years or more to adjudicate on what is in store.

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