News Items

last updated 11/06/2020

Rent action: thanks for nothing

last updated 11/06/2020

4 June 2020 - Proposed action on a deal to force commercial rent negotiations after months of inactivity is being condemned as 'too little, too late'

After weeks of stalling, Labour and New Zealand First appear to be close to reaching a deal to force rent negotiations between commercial tenants and landlords ­– albeit on a very limited scale, reports the New Zealand Herald.

Any business which has already reached a deal with its landlord over Covid-related rent relief appears set to be automatically excluded. Deirdre Watson, a barrister who specialises in the franchise sector, says that this 'will be very frustrating for tenants who felt bullied or pressured into accepting a bad deal during the lockdown, simply because they wanted to bring the stress caused by threats of recovery action from landlords to an end. Any tenants in that situation should look closely at the wording of any deals that were done to see whether they can be overturned or whether they are no longer applicable.'

According to multiple sources, the Government's deal would cover only small, New Zealand-owned businesses, probably excluding any business with more than 50 employees.

Businesses will also have to have been deemed non-essential, meaning they were unable to operate under Covid-19 alert levels 3 or 4, a person briefed on the plans said.

The Herald suggests, ‘The deal will have no practical impact for most businesses.’

In a separate story, the Herald says the Government will insert an 'implied clause' to leases to spur rent relief, and predicts more than 6,000 disputes which will receive taxpayer-funded support for arbitration. Andrew Little said that to qualify for this, businesses would need to have '20 or fewer full-time staff at each leased site' and be New Zealand-based.

Note: There is a discrepancy between the figure of 50 quoted first and the figure of 20 quoted later. Apparently, although the proposal distributed to ministers ahead of the committee referred to companies having to have 50 or fewer employees to qualify, the Cabinet minute recording the decision said it would apply to businesses with '20 or fewer full-time equivalent staff per lease site' - see later report.

According to a report in Stuff, 'The Property Council of New Zealand chief executive Leonie Freeman said 20 full-time employees per leased site would include big businesses and almost every retail premises in New Zealand when the council thought the Government's intention was to help small businesses struggling to pay rent and small landlords burdened with mortgages and rates.

A lot of detail about how the initiative would work was missing, she said.

She thought the government meant small business with not more than 20 full-time staff in total, not per site, but that needed to be clarified.'

Most franchisees employ fewer than 20 full-time equivalent staff, except in the case of some of the larger quick service restaurant operations. However, if Ms Freeman's suggestion that the definition referred to 'not more than 20 full-time staff in total' were to be correct, then franchisees who operate multiple units could be disadvantaged. The fact that franchisors also employ staff in support and administration functions could also be drawn into any dispute, despite the fact that they are not employed by franchisees which are independent small businesses.

A timeline of inactivity

The need for some form of code of conduct for rent negotiations with landlords during a time when many businesses were required to be closed was signalled early on.

While business owners were unable to operate and, in many cases, unable even to enter the building where their shops or offices were located, there was no guidance as to what landlords should do in such circumstances.

A variety of different lease conditions, differing interpretations of the same lease conditions, and differing degrees of sympathy among landlords led to confusion, stress and unequal treatment. Some landlords suspended rents altogether, while others effectively said, 'Tough, pay up or you're out!' Some even sought to enforce annual rent increases due on 1 April while the Level 4 lockdown was in place.

The Franchise Association wrote to Government and Opposition MPs on 2nd April and again on 16th April calling for action on the critical issue of rent relief to tenants of commercial leases and for the establishment of common guidelines. It pointed out that Australia had already taken such action. These letters were completely ignored.

On 24th April, FANZ joined forces with seven other business and employers’ organisations to call on the Government to urgently increase protection for commercial tenants in the face of rents that are now completely unaffordable under the Covid-19 lockdown and pose a serious threat of causing business failures and job losses. That call received considerable publicity.

On 29th April, Justice Minister Andrew Little announced that the Government was considering changing the Property Law Act ‘to support New Zealand businesses in managing their rent’.

In her daily press conference that same day, the Prime Minister announced, ‘ I can confirm that we are actively working on measures under which 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 business.’

‘We’ve heard the call from small business owners over and above that already provided by the wage subsidy and tax measures and we are working actively to resolve that. So in principle we have supported the work Minister Little is doing. We expect papers to come shortly and as soon as those final decisions and work has been completed by the Ministry of Justice we will be sharing it.’

Still nothing happened, despite the fact that Australia had already produced a workable Code which covered many of the issues raised by the Associations. It seemed a rare mis-step by a Government which had generally been quick to take action to prevent job losses and business failures, even if some of the details had to be worked out later.

NZ First, NZ businesses last

Finally, on 10 May, a report in the New Zealand Herald suggested that the lack of action was owing to blocking by New Zealand First. According to the report, Andrew Little had taken 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. Its ministers failed to agree to the proposal, and the NZ First caucus later voted not to support it.

New Zealand First appeared to believe that it would be wrong to intervene in contract law when commonly-used leases were based on the Auckland District Law Society model which covered the issue of non-access. It also felt that intervening in the leasing market could allow foreign-owned tenants to ‘game’ locally-owned landlords. However, many agreements do not use the ADLS model (which has not been tested in Court), and the majority of tenants are New Zealand companies.

During that same week, FANZ released a survey of franchises in which 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.

FANZ CEO Robyn Pickerill said, ‘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.'

Today’s comments – over two months after the original letter from FANZ drawing attention to the problem – have been condemned by industry insiders as, ‘Too little, too late. This was totally avoidable. Thanks to New Zealand First, businesses will fail.’

Franchise lawyer Stewart Germann notes, 'Although the Government has done well in handling Covid-19 and the lockdown, it has failed abysmally to look after the interests of small-to-medium commercial tenants with little or no income in dealing with greedy and aggressive landlords. The latest proposal will be too little, too late, as many tenants have gone to the wall or will shortly do so. Shocking!'

Read more background on the politics delaying the decision in this NZ Herald report - 12 June 2020 (Premium subscribers only)

Order a Print Copy
Order a Print Copy