As a result of COVID-19 restrictions, many small businesses are struggling to meet fixed costs due to the loss of revenue. The scale of the issue is not clear, but according to the released Cabinet Paper there is evidence to suggest that:
- One-third of commercial tenants did not pay rent in April; and
- Rent from the retail sector was down 53%, and office and industrial rents were down by around a third.
For some, there is no contractual right to rent relief in their lease. A number of landlords and tenants have been unable to reach a reasonable agreement regarding rent payments.
At Morrison Kent Lawyers we have been monitoring developments in the ongoing COVID-19 pandemic and national lockdown, and providing landlords and tenants with legal and commercially pragmatic advice in relation to their leases.
On Thursday 4 June 2020, the New Zealand Government announced an action plan to help small businesses resolve rental disputes as a result of the COVID-19 restriction levels. The action plan came into effect as of 4 June 2020.
The action plan is intended to help resolve issues in commercial leasing arrangements by requiring a fair reduction in rent where a business has suffered a material loss of revenue due to COVID-19. To achieve this, the Government will create a temporary amendment to the Property Law Act 2007 which will provide for there to be an implied term in leases for rent relief (the exact wording of this has yet to be determined). The Government will provide direction on how the implied term is to be interpreted, including the factors that need to be considered in determining the reduced rent in the particular circumstances of the parties.
Where property owners and tenants fail to come to an agreement on the rent reduction, arbitration will be mandatory. The Government will subsidise the arbitration cost of up to $6,000.00. This does not cover the parties’ legal fees or any arbitration cost in excess of $6,000.00.
To be eligible for this, you must:
- Be a New Zealand based business;
- Have 20 or fewer full-time equivalent staff; and
- Have not already come to an agreement for a rent abatement.
FOR MORE INFORMATION
If you have unresolved rent issues and would like advice on how this might assist, contact us on 04 472 0020 or email our property experts Richard Caughley or Erica Tromp, to discuss your options. Morrison Kent lawyers have experience and knowledge spanning a range of industries and specialisations and are well placed to help you assess your business and property needs during this time.
For an in-depth review of what arbitration entails, please refer to our article Alternative Dispute Resolution- behind closed doors.