Temporary law changes have been passed in Parliament enabling landlords and commercial tenants to agree a fair proportion of rent relief where a business has suffered losses due to the impacts of COVID-19.
The provisions passed into law in the COVID-19 Response (Management Measures) Legislation Bill strike a balanced response to concerns from business operators worried about meeting full rental costs while their incomes have been hit by COVID-19 restrictions required to contain the spread of the virus.
We understand many landlords and their commercial tenants either have a clause in their tenancy contracts which offers rent relief during an epidemic emergency, or the parties have been able to agree terms themselves as a result of previous lockdowns.
The new provisions apply to parties who have not been able to reach agreement on a fair proportion of rent relief during an epidemic emergency, and giving consideration to losses because a tenant has not been able to fully conduct business in their premises due to COVID-19 restrictions.
The landlord and tenant would need to agree on the amount of rent that is fair. They could also agree that the clause does not apply to their lease.
The law change would only apply to leases which do not already provide for adjusted rent payment terms during an epidemic emergency. Agreements that parties have already made to adjust rent terms to reflect the COVID-19 situation will also not be affected by the implied clause.
The implied clause will apply from 18 August 2021, which is the start of the most recent rise in Alert Levels. This responds to submissions to the Finance and Expenditure Select Committee advocating for parties to be able to access the provisions of these changes from the time restrictions impacted businesses, and it will ensure that the full impact of the lockdown restrictions on businesses can be taken into account.
The changes are to ensure that landlords and tenants come to reasonable agreements about rent obligations while still respecting agreements that have already been made.
Changes reflecting what was raised by submitters during the select committee process include:
- a requirement that landlords and tenants must consider the tenant’s loss of income in determining a “fair proportion” of rent,
- a requirement that the landlord and tenant must respond to each other within 10 working days of communication about the implied clause, and
- that parties may seek to resolve disputes through mediation or other forms of alternative dispute resolution before a referral to arbitration, and that the Disputes Tribunal’s jurisdiction is not excluded as an option.
These changes in the COVID-19 Response (Management Measures) Legislation Bill support businesses, particularly small and medium enterprises, to resolve disputes over COVID-19 related rent issues while ensuring fairness between tenants and landlords in sharing the financial burden of the impact of COVID-19 restrictions in such a way that gives businesses the best chance of a sustainable recovery.