While many tenant and landlords partnerships have worked together in terms of temporary rent relief and credits, much of the country were waiting to see what type of relief situation the government would implement specifically to assist with business continuity and rents. Unfortunately it was not as significant as hoped or what the NZ Property Council had proposed to the Government.
The Government announced its intention to put in place some temporary law changes to support tenants and landlords to ensure leases are not terminated on current cashflow issues. However there wasn’t a cash injection to struggling businesses to assist with paying this rent and operating expense like we saw with the wage subsidy to assist with paying staff.
Below is an overview of what has been announced, sorted by each type of situation.
For tenants:
A bill has been announced that intends to give commercial tenants more time to catch up on overdue rent before a landlord can take steps to evict them.
Under the current law, a commercial landlord must give a tenant at least 10 working days’ notice before cancelling a lease because of overdue rent.
The Bill will extend the notice period from 10 working days to 30 working days. This will give more time for commercial tenants to catch up with rent payments before the tenant can be evicted. If the tenant is not able to catch up, the tenant will have more time to approach the landlord about temporary changes to the rent or lease agreement to help the tenant get by until it can resume operating as usual.
For landlords:
If commercial tenants are having difficulty paying rent, that may make it difficult for landlords to keep up with their mortgage payments. The Government has announced that the Bill will also give borrowers (including landlords) more time to catch up on overdue mortgage payments before a lender can take steps to enforce the mortgage.
The current law says that lenders must give 20 working days’ notice before they use their powers to take possession of, or sell, the mortgaged property. The Bill will extend that period to 40 working days.
This change will apply to all mortgages, including residential and commercial, and regardless of whether the mortgaged property is tenanted. However, we anticipate that mortgage holidays are likely to be the first port of call for residential borrowers.
Tax changes:
A tax loss carry-back scheme has also been approved that will allow a large number of businesses to access their previous tax payments as cash refunds. Essentially this means a forecast loss in the current financial year can be offset against the tax paid on a profit from last year.
Changes to tax loss continuity rules would make it easier for firms to raise new capital without losing the benefit of their existing tax losses, and that would save business an estimated $60m annually.
Inland Revenue will also be given greater flexibility for dealing with businesses affected by Covid-19, which could include extending deadlines for filing tax returns and paying provisional and terminal tax for up to 18 months.
The fine print:
The changes will apply from 10 working days after the Epidemic Preparedness (COVID-19) Notice 2020 was issued on 25 March. This will ensure they apply to all tenants and borrowers affected by the measures taken against COVID-19.
This is a temporary change to provide relief to tenants and borrowers affected by the response to COVID-19 and allow more time for parties to discuss how they may get through this period and resume business when the Alert Level allows for it. The law will return to the current timeframes six months after the end of the end of the Epidemic Preparedness (COVID-19) Notice 2020.
If your lease or mortgage is affected by COVID-19 you may like to talk to a lawyer about how the changes will apply to your circumstances when the Bill is passed. This is particularly important if you are a tenant who has been given notice of overdue rent payments, or a borrower who has been given notice of overdue mortgage payments.
Landlords and lenders who are considering taking action to enforce leases and mortgages should also consider first getting legal advice.
If you'd like to discuss your current or future commercial property situation, please get in touch with us at service@industriousproperty.nz for a no obligation chat! We're full of advice and experience we'd love to share.
Stay safe out there NZ, and be kind!
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