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Commercial Landlords Call For Support To Keep The Economy Moving

New Zealand’s commercial property sector is calling for property owners, tenants and the Government to act quickly to support the sector, which is facing hundreds of millions in lost revenue, increasing the risk of stalling the economy.

“As property is the home of business, any crisis that affects businesses will also affect property owners”, says Property Council New Zealand chief executive Leonie Freeman.

“We are hearing of a multitude of scenarios regarding rental payments. At one end of the spectrum there are many landlords working constructively with tenants on their particular situations and discussing rent relief such as postponement or other relief measures. However, there are many examples of large tenants sending letters announcing they are refusing to pay rent with no consultation. This move could devastate the commercial, industrial and retail property sectors.

“We will assist the Government in taking immediate action to support property owners through this period”, says Freeman.

“We’re all in this together and have a shared interest in seeing businesses make it through this very difficult time.

“Every lease is unique to the situation. We encourage landlords to review their current agreement and consult with their lawyer regarding implications. Check your insurance and have an honest conversation with your tenants about the best way forward.

“There has been much speculation around the impact of a specific contract clause (Clause 27.5 and 27.6 of ADLS Sixth Edition) put in place after the Christchurch earthquakes that stipulates that tenants do not have to pay rent should they not have access to the premises. Whether or not a tenant’s lease includes this clause, we would encourage owners and tenants to negotiate in good faith what a fair proportion of rent is. This will help ensure that property owners can continue providing a service long after COVID-19 is no longer in the headlines”, says Freeman.

“While it’s impossible to know how many contracts include this clause, we expect the impact for New Zealand property owners to be in the hundreds of millions.

Landlords, tenants and government need to work together regarding rent relief solutions. There are three aspects to consider when approaching solutions:

  1. Contractual position – that is the lease agreement and its provisions
  2. Commercial position – the need to keep landlords and tenants in business
  3. Ethical position – what is the right thing to do for the parties concerned and our wider community

The Government recently announced the reintroduction of depreciation on buildings. This has been received as a positive move from the property sector. However, this is not an immediate cash injection and therefore does not solve the immediate situation of supporting those landlords and tenants needing assistance during this lockdown period. In addition, the level to which depreciation on buildings improves a landlord’s position varies significantly depending on the tax profile of the landlord and the type of building, where retail properties in particular benefit to a significantly lesser extent than other property classes.

“It is simply not enough to bridge the gap in what is becoming a crisis of cashflow for many property owners.

“Support for property owners and tenants could be a targeted subsidy or another form of support package. The next three months will be critical to keeping the economy moving.

“On a local level, our members have also asked that local government look at rates relief and re-consider their proposed rates increases during the upcoming annual plan process. With many proposed rates increases exceeding 5% and some in excess of 10%, the draft Annual Plans need to be adjusted to a level that is fiscally responsible - ideally at the rate of inflation - leading into a predicted global recession”, says Freeman.

“There are a variety of potential solutions that would alleviate the economic impact of COVID-19, but action must come from the top and it must be put in place quickly. The ramifications of letting property owners bear the brunt of this crisis are dire”, says Freeman. “There’s little point in having a tenant survive with the landlord foreclosed on and vice versa. We must work together to get through this period of unpredictability.

“Property Council welcomes further discussion and collaboration with the Government and local authorities as we continue to work together to find a solution that ensures both businesses and property owners continue to operate.”

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