'This is completely out of the blue': Property industry blindsided by commercial lease changes

Justice Minister Kris Faafoi announced the changes on Tuesday. Photo / Mark Mitchell

Changes to the Property Law Act to force landlords and tenants to strike deals over lockdown-related rent relief were kept secret until minutes before legislation was introduced to Parliament.

On Tuesday afternoon Associate Minister of Housing Kris Faafoi was speaking to reporters at Parliament when his office released news that the Covid-19 Response Legislation Bill included an amendment to the Property Law Act.

The changes "insert a clause into commercial leases requiring a 'fair proportion' of rent to be paid where a tenant has been unable to fully conduct their business in their premises due to the Covid-19 restrictions," Faafoi said.

Where tenants and landlords cannot agree on the fair proportion, they can go to arbitration. The changes "will send a signal that we want, when there are high alert levels, both landlords and tenants to come to some form of fair arrangements".

Throughout 2020 Labour tried and failed to impose rent relief where landlords would not come to deals with tenants for rent relief covering the period of lockdown, when many were legally unable to operate.

As a protracted and sometimes messy battle with New Zealand First dragged on, Labour increasingly acknowledged that most landlords had come to agreements with their tenants.

Faafoi said he was unsure how much of a problem it was this year but there had been a steady stream of correspondence pointing to a problem.

"I think there have been, essentially, a couple of holdouts in the latest outbreak that haven't seen fit to find a fair resolution and this change will, essentially, force them to do that if there is a lockdown."

The changes caught the industry completely unaware. NZ Property Council chief executive Leonie Freeman said she wrote to Faafoi about a month ago asking to be consulted if the Government was planning changes.

She received no response, while comments from other ministers in recent weeks suggested the Government was not looking to become involved.

"This has come completely out of the blue," Freeman said. The move would create much work for lawyers as it was unclear what constituted a fair proportion, adding costs for both tenants and landlords.

"To suddenly put this across every single contract in the country with no discussion or understanding of the complexity involved is going to create a lot of confusion," Freeman said.

For the Government to insert the changes to commercial leases was unheard of, Freeman said, prompting questions of whether it would do the same for mortgages or insurance contracts.

"That the Government think they can do this at a whim is absolutely gobsmacking."

The changes were welcomed by both Retail NZ and Hospitality NZ.

"Since mid-August, most retail and hospitality businesses have had almost no revenue coming in, and some landlords have not been willing to negotiate reasonable terms," Hospitality NZ chief executive Julie White said.

White has been claiming in recent weeks that - anecdotally at least - it appeared landlords less willing to negotiate concessions than during the first level four lockdown.

But she also acknowledged that the news was a surprise. Hospitality NZ had also written to Faafoi around a fortnight ago and had not had a response.

Andrew Bayly, National's shadow treasurer, said the move was complete overreach.

"The last thing businesses need right now – especially those that are struggling to keep afloat due to the current alert levels – is the Government inserting complicated clauses into their commercial leases."

Irrespective of when the Covid-19 Response Legislation Bill is passed into law, the commercial rent clause legislation will be effective from Tuesday.