Justice Minister Andrew Little has announced an arbitration support subsidy of up to $6k for small commercial tenants stuck in their attempts to get rent relief as a consequence of COVID-19.
We’re pleased to see some recognition of the plight of tenants and landlords and notwithstanding our obvious bias towards property advisory services, challenge some of the principles based on our experience in lease negotiation:
- Arbitration is the very formal process prescribed in many leases to resolve dispute where agreement between tenant and landlord seems impossible. We believe that arbitration is the place of last resort and therefore the Government would be far better subsidising the steps that facilitate meaningful and constructive tenant/landlord negotiation, rather than subsidising the cost of getting the ambulance to the bottom of the cliff. Facilitating the parties coming together and working on solutions with expert property advisors funded by the Crown seems far more logical and would be consistent with the Business Advisory Fund initiated by NZTE that subsidised expertise such as employment/HR advisory services during the crisis.
- Many tenants tackled and resolved the question of rent abatement in April/May early in the crisis… so the horse has bolted. Our recent survey of office tenants showed that 70% of respondents sought rent abatement and, of those that did, 93% received some form of relief. Based on the data, we can presume a low number of office rent disputes will move forward to arbitration. On the other hand, this subsidy may in fact be more targeted at retail tenants where leases tend to favour the landlord and the tenant does not necessarily have access to the necessary expertise. Regardless, this initiative is late and we suspect the take-up rate will be relatively low and therefore have minimal impact despite appearing like a $40m injection of support.
- The pain is not over yet. Many businesses suffered zero revenue during Alert Level 4 which prompted the immediate flight to rent relief. This was the right thing to do, with most acting early and reaching agreement of various forms. However, the real pain is likely to be over many months of reduced revenue as the recession kicks in. This is where Government support is really required – to both tenant and landlord. Where is a tenant left if they have already negotiated relief in April but need further relief over time? Presumably they will re-engage with their landlord – but if arbitration is then required, there is no support available. The announced package of ‘$40m’ is not available where agreement has already been reached. No second chances.
We appreciate MoJ will lean towards matters that are contractual or more formal such as dispute resolution. However, if Cabinet is making cash available, these initiatives and funding lines should be focused on supporting the steps that are aimed at reaching a successful agreement, rather than funding the forced solution. The tenant landlord relationship should be about partnering and fostering amicable solutions, which in our experience is the typical outcome. However, this requires expert influence and facilitation.
If the Government is serious about achieving fair commercial solutions between tenant and landlord, they would create a subsidy that allows a small tenant access to professional property advice early in the process, not at the end.