No RSVP needed: Government tells landlords to come to the party 

Commercial rent relief to be mandated

A newly proposed law looks set to require commercial landlords to negotiate rent relief deals with their tenants, in a bid by the Government to counter the economic effects of COVID-19 lockdowns on New Zealand businesses. 

Parliament went into urgency on 29 September 2021 for the first reading of the COVID-19 Response (Management Measures) Legislation Bill (“Bill”). The Bill seeks to amend a number of existing laws, however, it is the changes the Bill proposes to make to the Property Law Act 2007 (“Act”) which have received the most attention thus far. 

If passed, the Bill would amend the Act by inserting a clause into some commercial leases requiring a “fair proportion” of the rent and outgoings to be paid where the tenant has been unable to access the premises to fully conduct its business due to COVID-19 restrictions. The clause, which would take effect from 28 September 2021, is to be applied to leases which do not already provide for adjusted rent payments during an epidemic emergency.

A significant number of commercial leases in New Zealand are executed on the Auckland District Law Society’s (ADLS) deed of lease form. Recent editions of the ADLS lease have contained a “no access in emergency” clause, which many tenants have been able to rely on to obtain rent reductions during previous (and existing) spells in higher COVID-19 alert levels. The Bill, if enacted, would extend lockdown rent relief entitlement to tenants with no equivalent clause in their lease and even tenants whose ADLS lease has had the “no access in emergency” clause crossed out. 

No silver bullet

Justice Minister Kris Faafoi has said that the Bill will ensure that landlords and tenants come to reasonable agreements about rent obligations. However, contrasting responses to the Bill’s sudden announcement from figures in both the business and property sectors suggest that there remains a strong possibility that conflicts will continue to arise in this space. 

Crucially, landlords and tenants will still need to come to an agreement as to what a “fair proportion” of the rent is. This is problematic, because there exists little statutory or contractual guidance for parties on what constitutes “fair” rent.  Common sense might dictate that a hair salon, unable to open during Alert Level 4, would be due a greater level of rent relief than an accounting firm which can transition smoothly into remote working whenever lockdown strikes. Yet, neither the Bill nor the existing ADLS lease contains any provisions to confirm this assumption. Rather, the landlord and tenant are left, perhaps rather optimistically, to come to an agreement on what seems “fair” in the circumstances.

Help is available

Given the degree of uncertainty that still exists around COVID-19 rent relief, we foresee ongoing issues in this space, particularly as a new group of landlords and tenants grapple with the “fair proportion” issue once the Bill is passed. In the event parties cannot reach an agreement, the Bill requires disputes to be referred to arbitration (notwithstanding any other dispute resolution processes that may be provided for in the relevant lease). Arbitration is expensive and it will almost always be better for both sides if they can resolve their dispute amicably. 

An experienced advisor can often make all the difference when issues arise. We have been assisting both landlords and tenants on a wide range of lease issues since the beginning of the pandemic, including rent relief negotiations. If you are having problems with your lease, contact Sarah, Jordan, Amanda or Sean to discuss a solution.  

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