Are we about to see further changes to New Zealand's Covid-19 commercial leasing landscape?
At today's press conference (29 April 2020) Jacinda Ardern announced that the Government is working on some kind of change where commercial landlords would have to reconsider rent over the Covid-19 period.
To date, the only legislative changes to commercial leasing have been to the notice periods under the Property Law Act which applies before a commercial landlord can cancel a lease for unpaid rent, and before a lender can take steps to enforce a mortgage for overdue loan payments.
Under the current law, a commercial landlord must give a tenant at least 10 working days’ notice before cancelling a lease because of overdue rent. This notice period will be extended to 30 working days. Lenders must currently give 20 working days’ notice before they use their powers to take possession of, or sell, the mortgaged property; this period will be extended to 40 working days. The intent of these changes are to give tenanst time to "catch up" on overdue rental payments and to provide corresponding relief to landlords whose ability to meet mortgage payments may be affected by a reduction in rental income.
However, Australia has taken quite a different approach to the Covid-19 crisis, recently introducing a Mandatory Code of Conduct for commercial leasing.
The Code compels certain retail and commercial landlords and tenants to negotiate in good faith. Landlords will be required to negotiate with tenants that are suffering "financial stress or hardship", are eligible for Australia's JobKeeper program (which has similarities to New Zealand's Covid-19 wage subsidy scheme) and have a turnover less than $50 million.
The Code sets out a number of leasing principles; landlords must offer to reduce rent (in the form of waivers and deferrals) proportional to the trading loss in the tenant’s business and must not terminate a lease for non-payment of rent during the pandemic period/subsequent recovery period. Tenants must continue to honour and uphold their obligations under the lease and provide accurate financial information for the purposes of the negotiations.
If negotiations guided by the principles of the Code are unsuccessful then there is the ability to refer the matter to binding mediation.
It will be interesting to see if the New Zealand Government decides to take a leaf out of Australia's rule book. An approach along these lines would provide more certainty for both landlords and tenants in these very uncertain times, particularly for tenants who do not have the protection of a "no access in emergency" clause (or similar) in their lease requiring an abatement of a fair proportion of the rent and outgoings.
Even if such measures are not introduced, we suggest some of the guiding principles of the Code may be of assistance to parties currently involved in leasing disputes. For those interested, the full text of the Code can be found on the Federal Government's website.