The Government has announced changes to Tenancy law to provide some assistance to commercial and residential tenants. From the Beehive website:
The Government has introduced changes to help ease the impacts of COVID-19 restrictions on both commercial and residential tenancies.
As part of the COVID-19 Response Legislation Bill introduced to Parliament, measures are being taken to help businesses resolve disputes over commercial rent, as well as provide greater certainty for landlords and tenants by protecting residential tenancies from being terminated during COVID-19 Alert Level 4.
“With regards to commercial rental situations, we have heard the concerns from business operators unable to meet full rental costs while their incomes have been hit by COVID restrictions needed to contain the spread of the virus,” Justice Minister Kris Faafoi said.
“Therefore an amendment to the Property Law Act is proposed to insert a clause 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.
“Landlord and tenant would need to agree on the amount of rent that is fair. They could also agree that the clause does not apply,” Kris Faafoi said.
Arbitration will be required where landlords and tenants are unable to come to agreement about a fair rent proportion, unless they agree to an alternative dispute resolution process such as mediation.
And for residential tenancies:
The legislation will be similar to the no tenancy termination measures in place last year, but with some key differences … [t]enancy termination restrictions will not apply for a fixed period of time. Instead, the restrictions will be able to be switched on and off by Ministerial order.
The changes have attracted some really overblown rhetoric from the usual suspects. For instance there is this extreme version from Barry Soper:
… they dropped another bombshell, again in the property arena, with commercial property owners being left punch drunk with Justice Minister Kris Faafoi putting in some time at the office and announcing leases were being changed.
Faafoi, who doesn’t have a legal bone in his body, is making changes to property law, inserting a clause allowing a tenant to pay a “fair proportion” of their rent where Covid has impacted on their business. It avoids the Government having to step up to compensate the struggling tenants.
And Property Council spokesperson Leonie Freeman expressed outrage and said the only people to benefit from the change would be lawyers. From Radio New Zealand:
“This proposal completely misses the intricacies of commercial leases. Where is the bespoke response for hospitality or retail? Why aren’t we focusing on where the need is the greatest?” she said.
Freeman told Checkpoint there was no consultation with tenants or landlords.
“It’s a great day to be a lawyer because all it’s going to do is create a whole lot more uncertainty and litigation when we want businesses focusing on getting back to business.
“The focus really needed to be on the areas where the tenants are really vulnerable, particularly in hospitality.
“What does a fair proportion of rent mean?”
The overblown rhetoric ignores the fact, dear reader, that the proposal is to ensure that the same provision that already exists in many commercial leases will exist in all commercial leases. The Auckland District Law Society lease, which is an industry standard lease, contains this provision:
If there is an emergency and the tenant is unable to gain access to the premises to fully conduct the tenant’s business from the premises because of reasons of safety of the public of property or the need to prevent reduce or overcome any hazard, harm or loss that may be associated with the emergency … then a fair proportion of the rent and outgoings shall cease to be payable for the period commencing on the date when the Tenant became unable to gain access to the premises to fully conduct the Tenant’s business from the premises until the inability ceases.
The change was introduced in 2012 after the Christchurch Earthquake to address particularly odious examples of landlords insisting on full rental being paid by tenants whose businesses had been hopelessly compromised by the earthquake. Lawyers have had 9 years to work out what the words “fair proportion” mean.
This form of lease is in wide use although some malls will have their own specialised versions of lease that they use.
For leases without this provision the parties are free to negotiate their own changes and many have. For those landlords who do not have such a provision in their lease and who refuse to negotiate rent reductions then I have absolutely no sympathy for them. Many businesses are doing it tough. Landlords should not be exempt.
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