Subsidised arbitration and mediation services are available from now until March 2021, for tenants and landlords of small to medium businesses who have been unable to agree on rent arrangements during a lockdown period (Alert Levels 4 and 3). The subsidised service was one limb of the proposed commercial rent package put forward in June and discussed here. Significantly, the proposal to introduce an implied emergency rent relief clause in commercial leases was shelved.
The services are available for disputes regarding payment of rent incurred during Alert Levels 4 and 3 where:
- the parties have not yet reached an agreement;
- the tenant has experienced a 'material loss of revenue' (further described as a significant decline in revenue or receipt of the wage subsidy) during a lockdown period due to Government Covid-19 restrictions; and
- both parties agree to use the service.
Arbitration can only be used where the lease includes a clause which provides for the reduction of rent in an emergency, while mediation is available to both those with and without such clause.
One of the parties to the dispute must be New Zealand based (registered, operating and physically located in, and with employees legally entitled to work in, New Zealand) and have 20 of fewer full-time equivalent staff per lease site.
The Ministry of Justice has selected three dispute resolution suppliers, one of which must be used in order to access the subsidy. Mediation services will be fully funded, up to a value of $4,000 (including GST) per dispute, while arbitration services will be subsidised up to $6,000 (including GST) per dispute and the parties will need to fund any additional costs of the arbitrator (up to a maximum of $2,000 including GST). Parties will of course bear their own costs (including any legal costs) in addition for either service.
The subsidised dispute resolution services represent a significant step back from the initial June proposals. Importantly, it does not fundamentally shift the legal rights and obligations of parties to commercial tenancies. Unless the lease includes a "no access" clause, the parties will be confined to mediation - essentially a facilitated commercial discussion between the parties as to whether and to what extent rent should abate (rather than a determination of legal rights). In addition, many landlords and tenants, both with and without "no access" clauses in the relevant leases, will by now have reached agreements regarding any rental abatement for the lockdowns. However, making dispute resolution more accessible is a good initiative which will hopefully facilitate resolution of any remaining disputes, particularly those where there may have been communication breakdown between the parties and involvement of a third party facilitator could move the discussions forward.
Further information can be found on the Ministry of Justice website. If you are considering accessing the services, please contact one of our experts below.