The New Zealand government said it will temporarily insert a clause to the Property Law Act which requires landlords to reduce rent in a bid to help businesses hit by the COVID-19 pandemic. 

After weeks of negotiations, Justice Minister Andrew Little announced the temporary changes this morning on commercial leases.

The package will invest up to $40 million in providing access to arbitration in a timely and cost-effective way to support small or medium businesses to reach agreement on a fair rent.

“I am concerned that some landlords and tenants are not coming together to make agreements that reflect the seriousness and uniqueness of COVID-19, including behaviour where large commercial tenants refuse to pay rent, and landlords demanding rent from small retailers who haven’t been able to operate,” Little said.

“What is required is fairness between commercial tenants and their landlords. That is why the Government is moving to ensure there is appropriate rent relief, with the burden shared by landlords, tenants and the Crown.”

Little said to be eligible for the implied clause a business needs to have 20 or fewer full-time staff at each leased site and be New Zealand-based.

However, where businesses and landlords have already been able to reach agreement in response to COVID-19, they will not be able to use the new process.

Little said the package provides a way of helping businesses that are facing a severe loss of revenue as a result of COVID-19 and will provide them with some certainty around commercial rent agreements.

“The package provides for flexibility of outcomes, and will provide a subsidy of up to $6,000 per arbitration,” he said. “This means, in many cases, the Crown will cover about 75 per cent of the arbitration cost.”

Little said the changes will apply starting today.

Greg Harford, Retail NZ’s chief executive, said the Government’s move is good news to businesses but is disappointed the action isn’t going further.

“It’s great that the Government is prepared to support an amendment to the Property Law Act, and provide financial support for arbitration,” he said.

“This will hopefully get parties to the negotiating table to find, but the support needs to extend to all commercial tenants.” 

Harford said the Government’s announcement suggested that support will be restricted to small businesses, but, he said, larger firms are equally at risk because of the COVID-19 crisis.

“We would like to see the support be extended to all tenants.”

Harford said rent is one of the largest cost for a retail business, and retailers are critically reliant on cash flow to pay that rent each month.

“Having been deprived of almost all revenue for nearly two months, many retail businesses are unable to meet rent payments that would have accrued in April and May,” he said.

“Throughout the COVID-19 crisis, some landlords have come to the party and been very supportive of their retail tenants. Others, however, have been intransigent, insisting that retailers meet the full costs of rent.”

Harford said this places retailers in an almost impossible situation, and rents need to move in proportion to revenue declines, no matter the size of the retail business.

Winston Peters, leader of New Zealand First, said the commercial rent dispute was fairly applied.

He said the solution to this problem should not have been to alter Contract Law for all existing lease arrangements.

“This would’ve been poorly targeted policy and affected many landlords who have sensibly adapted to the changed circumstances brought by COVID-19,” Peters said.

According to him, using a sledgehammer to smash a nut is not ideal.

“We must remember the sanctity of contracts is a crucial dimension to Settled Law,” Peters said.

He said after urging the Coalition partner to better define the size and problem of commercial rent disputes, they are now satisfied this has been achieved by a temporary amendment to the Property Law Act with the following criteria:

(a) Limiting eligibility to SME’s with 20 or fewer equivalent full time staff,

(b) that the business is New Zealand based, and,

(c) that the business has not already come to an agreement for a rent abatement with their landlord.

“The criteria is based on principles that landlord and tenant interests are both taken into account so that the financial burden of COVID-19 is fairly proportioned,” Peters said.