COVID-19: Temporary law changes for commercial leases
July 6, 2020
Working together as a nation during lockdown saved lives. Now the effort begins to save businesses and jobs as the full economic impact of COVID-19 hits home. To support businesses through this next stage, the Government has introduced temporary law changes around commercial leases.
What does it mean for my commercial lease?
The temporary law changes the period before a commercial landlord can cancel a lease, and before a mortgagee (a lender such as a bank) can act on overdue commercial property payments.
Unpaid rent
Previously a commercial landlord had to give a tenant at least 10 working days’ notice before cancelling a lease because of overdue rent.
This notice timeframe is now extended to 30 working days.
Mortgage payments
Previously if a landlord defaulted on mortgage payments, the mortgagee/lender had to give 20 working days’ notice to pay before it could exercise its right to take possession of or sell the property.
This timeframe is now 40 working days.
Mortgaged goods
The notice time for mortgaged goods owned by a business (such as a mortgaged fleet of vehicles) is extended from 10 to 30 working days.
When do the law changes apply?
The law changes came into force on 16th May but have been backdated to apply from 1st April. They will return to the usual timeframes six months from 25 June (unless it is extended). The changes occur under the Property Law Act 2007, as part of the COVID-19 Response (Further Management Measures) Legislation Act 2020.
Rent holidays and reductions during Level 4 and 3
After the Christchurch earthquakes, most new commercial leases had a clause where the tenant could request a “fair proportion” rent reduction during an emergency, if they were unable to access or use their premises. The intention was that any activation of the clause fairly balanced the circumstances of both the landlord and tenant.
UPDATE: Proposed law change for rent negotiations will not go ahead
On 4 June, a further proposed temporary law change to the Property Act was announced. This would see tenants and landlords who couldn’t agree on a fair rent reduction (if a business had suffered financially due to COVID-19) enter compulsory arbitration funded by the Government. However, NZ First pulled its support from the bill and on 30 July the Government said the change would not go ahead. A funded arbitration/mediation process is still available but is voluntary.
The scheme can be accessed by businesses with 20 or fewer full time equivalent staff per lease site, that are New Zealand based, and have not already come to an agreement with their landlord.
Working out what’s fair
Agreeing what is fair and reasonable for commercial leases isn’t always easy. It’s only natural that each party has the best interests of their business at heart. But avoiding lengthy and costly disputes almost always works out better for both parties. Working amicably together will produce the best possible outcome if a short-term or longer-term solution is needed.
For the full statement from the Ministry of Justice on the temporary law changes and Q & As, please see the link below:
The information in this article is provided to summarise, and is of a general nature. If you have any commercial lease questions or concerns that we can help you with, please get in touch.