Contributed by: Anna Crosbie and Grace Williams
Published on: April 15, 2020
The Government has today announced temporary changes to the Property Law Act 2007, in an effort to support businesses that may be under financial stress and struggling to make rent or mortgage payments as a result of the response to COVID-19. The stated intention of the changes is to keep existing lease arrangements on foot and allow more time for parties to discuss ways of getting through the current challenges, so they can "get back to business as usual" after the epidemic. The Bill implementing those changes is intended to be introduced once Parliament resumes and will take effect from 8 April 2020 for six months.
The current position under the Property Law Act 2007 is that commercial landlords must give at least 10 working days' notice before cancelling a lease due to rent being in arrears. The Bill will extend this notice period to 30 working days. The Government has stated that this will give commercial tenants more time to catch up on rent payments or to enter into discussions with their landlord around temporary changes to their lease or in respect of rent payments.
The announced changes do not impact on the actual payment obligations of tenants and do not prevent landlords from applying any late payment charges or fees specified in the lease. Unlike moves made in Australia, there is no indication as yet that the Government intends to oblige landlords and tenants to agree on a rental abatement if the lease does not provide for it. However, the Government continues to emphasise that reaching an agreement is likely to be in both parties' best interests.
Recognising that a number of commercial landlords are reliant on rental income to make mortgage payments, the new Bill will also provide some relief to property owners who might not be receiving rent in the usual course. Again, the announcement does not indicate any changes to the borrower's payment obligations, but extends the period of notice that must be given by lenders from 20 working days to 40 working days before they can use their powers to take steps to enforce the mortgage.
Once the Bill is introduced, the changes will apply from 10 working days after the Epidemic Preparedness (COVID-19) Notice was issued on 25 March 2020, being 8 April 2020. The Government has stated the changes are only temporary and will end six months from the date of the Epidemic Preparedness (COVID-19) Notice. Where a landlord or lender has already issued a notice and specified the shorter period, that notice will be treated as providing for the new minimum time period.
We will provide further analysis of the proposed changes once the draft legislation is available. In the meantime, a copy of the guidance issued by the Ministry of Justice in consultation with the New Zealand Law Society can be found here.
Please contact one of our experts if you wish to discuss what today's announcement means for your business.
This article is intended only to provide a summary of the subject covered. It does not purport to be comprehensive or to provide legal advice. No person should act in reliance on any statement contained in this publication without first obtaining specific professional advice. If you require any advice or further information on the subject matter of this newsletter, please contact the partner/solicitor in the firm who normally advises you, or alternatively contact one of the partners listed below.
Partner, Property and Construction
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Property and Construction