Supporting Kiwi businesses to resolve commercial rent disputes

The Government will legislate to ensure businesses that suffered as a result of the COVID-19 response will get help to resolve disputes over commercial rent issues, Justice Minister Andrew Little announced today.

A temporary amendment to the Property Law Act will insert a clause in commercial leases requiring a fair reduction in rent where a business has suffered a loss of revenue because of COVID-19.

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,” said Andrew Little.

“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.”

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.

The package will also provide guidance on applying the implied clause about a ‘fair proportion’ and requires that disputes about the implied clause be settled through a compulsory arbitration process in a timely and cost-effective way.

 “The package provides a way of helping businesses that are facing a severe loss of revenue, through no fault of their own, 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. This means, in many cases, the Crown will cover about 75% of the arbitration cost.

“The changes will apply from today, and I encourage businesses and landlords to work towards reaching a fair agreement on the payment of rent,” Andrew Little said.

The Cabinet Paper and Minute has been proactively released by the Minister of Justice and is attached.