Govt considers commercial rent relief solutions
Thursday 30 April 2020
Mounting costs for small businesses trying to deal with the economic fallout of Covid-19 have prompted the Government to consider rent relief options.
By Miriam Bell
However, it seems that those options do not include rent freezes or rent subsidies.
Justice Minster Andrew Little says that many businesses, especially smaller ones, have been hard hit by a drop in revenue due to Covid-19 and are struggling to meet their fixed costs.
“So, to add to the wage subsidy and other support in place, Cabinet Economic Development Committee ministers are discussing options around changing the Property Law Act to support New Zealand businesses in managing their rent.
“This includes how parties to a commercial lease would be expected to consider rent concessions in whole or in part for a period where the response to Covid-19 has had a material impact on a business.”
It does not include subsidising rent or rent freezes because both those options would mean commercial landlords would have their income protected at a time when no one else enjoys that privilege, Little says.
“Landlords need to share the burden of Covid-19 fairly with their tenants.
“But, also, the lockdown has affected businesses in different ways and it wouldn't be fair to have one solution - like a rent freeze - for every situation, especially when in many situations landlords have already agreed to rent reductions.”
Earlier this month the Government announced the Property Law Act would be amended to extend the timeframes required before commercial landlords can cancel leases and mortgagees can exercise their rights to sale or repossession.
The timeframe for lease cancellations has been increased from 10 working days to 30 working days, while those for mortgagees have gone from 20 to 40 working days for mortgaged land, and from 10 to 20 working days for mortgaged goods.
But Little says it is clear from information they have received that these changes alone are not enough in many cases.
Commercial landlord and business advocates alike have said more is needed, while the National Party has been calling for “help with rental arrears and cash flow constraints to give landlords and small businesses a fighting chance”.
The Property Council has proposed [to Government] a support package for commercial tenants facing a 50% loss of revenue.
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.
However, the Government appears to be looking to Australia for inspiration, with Prime Minister Jacinda Ardern telling media that work underway in New Zealand is similar to that in Australia.
In Australia, the Federal Government recently introduced a mandatory code of conduct which requires commercial landlords to negotiate with tenants who are eligible for the Jobkeeper programme and have revenue of less than $50 million.
Under the code, landlords are barred from terminating leases or drawing on a tenant’s security and there is provision for reductions in rent in proportion to falls in tenant revenue.
Those reductions come in the form of waivers or deferrals. Waivers must account for at least 50% of the rent reduction, while deferrals are payable over the remaining term of the lease or a 12-month period.
Neither Little nor Ardern have indicated when any sort of rent relief framework for the New Zealand commercial property sector is likely to be announced.
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