Proposed Mandatory Rent Relief

08-Jun-2020

On 3 June 2020 it was announced that the Government proposes to amend the law to provide for a mandatory rent relief scheme for small businesses suffering as a result of Covid-19.The intention is to amend the Property Law Act 2007 to imply a clause into leases of eligible businesses requiring a fair proportion of rent and outgoings to cease to be payable where the tenant’s business has suffered a material loss of revenue because of the restrictions put in place to combat Covid-19.

To be eligible the business must:
  1. have 20 or fewer full-time equivalent staff per leased site. This assessment will include employees of other entities closely associated with the business together with employees of any parent company or any subsidiary company of that parent. Consideration is being given to whether or not this provision should be more widely drawn to pick up associated entities as well.
  2. be New Zealand based. The proposal is that businesses that have an overseas head office or are part of an overseas based multi-national will not be eligible for relief.
  3. not previously have reached agreement for a rental abatement with the landlord. This could include cases where the parties have agreed to continue to pay full rent. The clause would be implied in situations where a landlord has insisted on strictly enforcing the terms of its lease, where there is no existing rent relief provision.
In determining what constitutes a fair proportion the proposed amendment will include a range of relevant factors to be considered. Indications are that these will include:
  1. the financial position of the landlord, the tenant and any other relevant party. For the purpose of these factors a relevant party would include any subtenant, any head landlord, and any parent company of the landlord and tenant.
  2. the impact of the Covid-19 restrictions on the business, including the impact of those restrictions that no longer apply;
  3. any mortgage obligations relevant to the premises;
  4. any financial support available to either party;
  5. revenue and profit levels in recent years;
  6. each party’s ability to financially survive the effects of the Government mandated Covid-19 requirements and restrictions;
  7. any difference in size and resources between the landlord, the tenant, and any other relevant party;
  8. any other factor that is reasonably relevant.

Any dispute in relation to the implied term would be resolved by arbitration. The Government proposes to support arbitration by allocating $40 million towards arbitration subsidies.

An arbitration subsidy of $6000 per dispute would be available where at least one party is a small or medium enterprise which has received the wage subsidy. The remaining costs of the arbitration would need to be met by the parties.

It is proposed that these changes will apply retrospectively with effect from 3 June 2020 and extend for 6 months after enactment of the legislation.