It appears that the changes will mean that owners will be required to consider rent concessions for smaller businesses where COVID-19 has had a material impact on turnover. It also appears that the arrangements may be similar (at least in part) to those in the “Code of Conduct for Commercial Tenancies" produced by the Australian government and to be implemented in each Australian state and territory.
The Australian Code imposes mandatory good faith leasing principles for commercial leases where the tenant has an annual turnover of no more than AU$50 million. A rent reduction must be offered based on the tenant's decline in turnover during the COVID-19 pandemic period and the subsequent “reasonable recovery period". The reduction can be a mixture of waiver and deferral arrangements, but at least 50 per cent (and sometimes more) of the reduction must be a waiver. There are also restrictions on the landlord terminating the lease, implementing a rent review or drawing on the tenant's lease security during that same period.
If a similar Code of Conduct is enacted in New Zealand the key question will be whether it will apply retrospectively, as many landlords and tenants have already negotiated rent arrangements to apply during some or all of the lockdown period. These negotiated arrangements might be more favourable to one party than those specified in the Code of Conduct. In addition many New Zealand leases (unlike Australian leases) contain a “non-access clause", allowing the tenant to pay a reduced rent during some of the lockdown period. Will the Code of Conduct override those contractual provisions?
We will update you as soon as we have further information.
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Disclaimer
This publication is necessarily brief and general in nature. You should seek professional advice before taking any action in relation to the matters dealt with in this publication.