More relief needed for commercial property sector

Thursday 16 April 2020

New measures to help out commercial landlords and tenants struggling with Covid-19 related lease issues have been announced – but the Property Council is warning that more support is needed.

By Miriam Bell

On Wednesday, the Government announced measures which include a $3.1 billion tax loss carry-back scheme, changes to the tax loss continuity rules estimated to result in $60 million annual savings to business and greater flexibility for affected businesses to meet their tax obligations

For commercial property owners, the big announcement was that the timeframes required before landlords can cancel leases and mortgagees can exercise their rights to sale or repossession have been extended.

Justice Minister Andrew Little says many businesses may be finding it difficult or impossible to pay rent if they are no longer able to access their property, and if landlords are not receiving rent, they may not be able to meet their mortgage obligations.

“As a result, the Government will extend the current 10 working day timeframe that commercial landlords may cancel the lease to 30 working days. This will be for both the period the tenant is in arrears before the notice is given, and for the period to remedy the breach.

“The Government will also extend the timeframes for lenders from 20 to 40 working days for mortgaged land, and from 10 to 20 working days for mortgaged goods. This will apply to commercial mortgages and home loans.”

Little says these measures will ensure an orderly process to deal with commercial lease disputes caused by COVID-19.

But the new measures have had a luke-warm response for commercial landlords and tenants alike, with many saying rent relief is needed.

Property Council New Zealand chief executive Leonie Freeman says the measures might cushion the blow for small businesses, but they are unlikely to significantly lessen the impact on New Zealand’s $145 billion commercial property sector.

Extending timeframes required before landlords can cancel leases and mortgagees can exercise their rights will give tenants and landlords some additional time to resolve contractual issues, she says.

“However, we remain concerned that the risks involved in non-payment of rent could have wider implications for the property industry and the wider economy.

“The ability for tax losses to be carried back to the previous financial year will be a buffer for some, providing additional cashflow for businesses.

“However, if your business was not previously making a substantial profit, or if you are a not-for-profit organisation, there’s little relief in this announcement. The question remains, will this help tenants pay some or all their rent and fulfil their contractual obligations?”

Small businesses are struggling to pay rent and in turn many mum-and-dad commercial landlords and, in some cases, larger property owners are finding it difficult to meet their mortgage obligations, she says.

“While the new rules are commendable, they won’t stop this from happening, they simply give everyone more time before lenders can act.”

Freeman says more support will be needed and that the Property Council has already proposed a support package for commercial tenants facing a 50% loss of revenue [to Government].

The Property Council’s proposal would provide immediate relief to tenants so they could continue to meet their contractual obligations.

“It includes a deferral of rent by landlords facilitated by the tax system and a targeted rent tax credit for tenants with direct financial assistance via a mechanism similar to the Government’s wage subsidy.”

Going forward, the Property Council is encouraging landlords and tenants to take a long-term view, Freeman adds. “Continue to negotiate in good faith so that everyone comes out of this with their business intact.”

Meanwhile, legislation enacting the new measures will be introduced into Parliament on April 27 and will apply effectively retrospectively once the Bill is passed.

The Government also says that work is also underway on further support for businesses as the impacts of COVID 19 become clearer.

Comments from our readers

On 17 April 2020 at 11:21 am Dabbler said:
Speaking as a 'Mum and Dad' landlord type, paying the mortgage on the commercial investment property isn't our only property related expense. We received contact this week that our tenant won't be able to pay any rent on 1 May, so whilst our bank will go interest only on our commercial loan there is NO relief from rates or insurance that we know of. Seems to us that we're the ones bearing all of the cost of our tenant being unable to pay the rent with no cost being shared by the bank (they still get all of their income from us), our insurer or the council.
On 18 April 2020 at 11:11 am commercial property managers said:
Councils should not be able to demand 100% of rates payable on commercial property over lockdown and or level 3 etc whilst (a) tenants and landlords have no legal access to their buildings and (b) where tenants are unable to trade or have diminished turnover and (c) whilst councils are not offering the full service for which they charge rates, I.e. public rubbish bins unemptied, streets, parks and public areas not cleaned, many council services either closed or a partial operation available. To be fair, Councils must take a loss just like landlords and tenants

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