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last updated 14/05/2020

Survey shows need for action on commercial leases; is NZ First blocking?

last updated 14/05/2020

10 May 2020 – Updated: NZ First said to be blocking Government action on commercial rents; new survey reveals extent of problem

Businesses may be fully or partially closed, but some landlords are unsympathetic. The Government promised action but nothing has been announced.

Following calls from eight industry and business associations in late April for government action on commercial leases, a snap survey conducted in the past week by the Franchise Association of New Zealand (FANZ) further underlines the critical need for action.  

The April letter to government asked for an immediate six-month moratorium on lease cancellations and debt recovery action by landlords for commercial tenants whose businesses are eligible for the wage subsidy.

The group of eight also asked for a mandatory code of conduct for commercial leasing to be created as soon as possible that sets a level playing field in landlord and tenant negotiations for fair and proportionate relief from rents linked to turnover. 

While government has made positive statements about the code of conduct and the Prime Minister promised action on 29 April, there have been no further announcements. The landlord and tenant community is now into a new phase with May’s rent now having fallen due, exacerbating the problem and generating a flurry of legal letters of demand.

NZ First blocking action?

NZ First is understood to be blocking Labour's plans. According to a report in the New Zealand Herald, Minister of Justice Andrew Little took a plan to Cabinet on Monday 4 May which would have forced landlords and tenants to negotiate for lower rents if the tenants could demonstrate losses related to Covid-19.

With its ministers having failed to agree to the proposal in the Cabinet meeting, NZ First considered the issue at caucus this week and voted not to support the proposal. The reasons for NZ First's reluctance to support were two-fold, the Herald was told by people familiar with the party's position.

First it would represent an intervention in contract law in an area where many leases agreed (especially those based on the format issued by the Auckland District Law Society) since 2012 include provisions for "emergencies" which appear to cover the disruption.

Second, NZ First is also believed to have taken the position that intervening in the leasing market could allow large foreign-owned companies to game negotiations with building owners, which were largely New Zealanders.

However, the ADLS issued a statement on 7 April cautioning that the meaning of the clause had not been tested in court, which some lawyers interpreted as a warning that the clause may not be the solution some imagined.

As far as the franchise sector is concerned, 72 percent of the franchises operating in New Zealand are home-grown brands (source: Franchising New Zealand survey 2017). The great majority of the others would operate through locally-owned master franchises or other local entities.

Labour has not directly responded to questions about whether NZ First was blocking its plans. NZ First's chief of staff, Jon Johansson refused to discuss the matter with the Herald, as did NZ First leader Winston Peters.

Need to share the burden

FANZ CEO Robyn Pickerill explained: ‘As we come out of this crisis it will not be a case of returning to business-as-usual, as our membership survey shows: businesses believe it is going to take six months or more before turnover gets back to pre-COVID levels and we need to help businesses find a way through that period. The best way to preserve businesses, jobs and the communities they are based in is for landlords and commercial tenants to work through this together to mutual advantage. One or two months of rent relief just isn’t enough to stop businesses from going under – that’s what our members are telling us.'

‘Without guidance from government, this will only get worse and businesses will close, we know that now. But timing is everything and if the government acts now by creating a level playing field that guides landlords and tenants to share the burden, both sides can win. Businesses will have the best chance of continuing into the future and landlords’ properties will be viably tenanted,‘ she says.

‘To this point we have seen some positive statements both from the Prime Minister and Justice Minister about the need for urgent action but if we are in the same position next month as we are today we will see an escalation from landlords that will place many retail and franchise businesses in peril of closure. What we are asking for will cost the taxpayer nothing, but will save businesses, jobs and local communities,' she continues.

Retail NZ Chief Executive Greg Harford echoed comments from the Franchise Association. ‘The Government's apparent inability to deliver proportional rent relief for commercial tenants will have a significant impact on the survival of many retail businesses,‘ he says.  

‘While some landlords have negotiated fair terms with their tenants, a significant number are playing hardball and are threatening eviction or debt recovery action.  Retailers can't pay rents if they don't have cashflow, and it will take months or years to recover from the Government-enforced closedown.  Retail NZ calls on all Government parties, including New Zealand First, to take action now to prevent the closure of Kiwi businesses and the loss of jobs,' he concludes.

Survey results snapshot

More than 100 retail franchise businesses responded to the survey representing more than 1,100 business locations;

95% of participants said it was ‘very likely’ (74%) or ‘likely’ (21%) that ‘significant numbers of New Zealand businesses’ will close without government action to encourage landlords to the negotiating table on rents*;

65% of participants said it would be ‘six months’ (17%) or ‘more than six months’ (49%) before their business would be restored to full turnover;

Of the participants, 21 were retail franchisors covering 788 business locations. Of these:

  • Only one franchisor, representing 14 retail locations (2%), has received rent relief on all its locations;
  • 15 franchisors, representing 653 retail locations (83%), have received relief on some of their locations but not on others;
  • 4 franchisors, representing 121 retail locations (15%), have received no relief at all;
  • Where some rent relief has been offered, the average offered across those surveyed is 50%, on the following basis:
    • 1 month's relief offered to 417 retail locations
    • 2 months' relief offered to 89 retail locations
    • 3 months' relief offered to 81 retail locations
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