Fair rent reduction for all commercial leases

Thursday 4 June, 2020

In a new scheme announced on Thursday, commercial landlords may now have to allow a reduction in rent where an eligible tenant has suffered a material loss of revenue because of restrictions put in place to combat COVID-19.

The Government will introduce the scheme via a temporary amendment to the Property Law Act 2007 to imply a term in all commercial leases requiring a fair reduction in rent where an eligible business has suffered a loss of revenue due to COVID-19. The subsidy is only available to businesses that have not already reached an agreement on rent abatement with their landlord and are based in New Zealand with 20 or fewer full-time staff per lease site (meaning large chain stores may be eligible).

The temporary law change will also provide clear rules on the factors to be considered in determining the reduced rent and guidance on other measures parties may agree to as a temporary change to support them both through the pressures of Covid-19.

Landlords and tenants who cannot agree on a fair rent reduction under the new implied clause will have to enter compulsory arbitration, but the Government will provide a subsidy of up to $6,000 per arbitration.

These changes may provide a way forward for commercial landlords and tenants who have not been able to reach an agreement on rent reductions.

If you want to know how your lease might be affected or whether you are eligible for the new Government scheme, contact our Commercial Property Team.