Tenants unable to pay rent on commercial leases have been given a lifeline after almost two months of negotiations between Labour and New Zealand First.
If tenants and landlords can't reach agreement on a fair rent reduction they will have to enter compulsory arbitration.
The rent dispute process is for businesses with 20 or fewer fulltime employees which can prove a loss of revenue as a result of Covid-19.
However, where businesses and landlords have already been able to reach agreement in response to Covid-19, they will not be able to use this new process that applies from today.
The change is a temporary amendment to the Property Law Act, which means if tenants and landlords can't agree on a fair rent price, they'll have to enter taxpayer-subsidised compulsory arbitration.
New Zealand First and Labour have been negotiating a deal for nearly two months and Justice Minister Andrew Little said he regretted that for some landlords and tenants it would be too late.
"I genuinely regret that those circumstances have arisen. I know that there will be some parties which will have reached agreements that at least one side won't be happy with, but they felt compelled to enter that sort of agreement and this package won't resolve it for them.
"We've always taken the view that in a situation like this, everybody's got a share of the burden, everybody should share the pain,'' he said.
"This package does that. It's not about the government throwing more money at people to fix it, it is about providing the means for parties in a commercial situation to come up with a sensible solution to deal with a difficult problem. It is a pity it has taken this long."
Little said the process announced today would provide guidance on how parties can negotiate "a fair proportion of rent and outgoings that would cease to be paid''.
This could be done in a number of ways including:
- No rent being paid for a period
- Reduced rent being paid for a period (including reductions of varying levels over successive periods)
- A scheduled rent increase being deferred
- Rent continuing to be paid unabated
- A mix of these options.
Throughout lockdown and in the weeks since, the government has been encouraging landlords to negotiate with tenants.
While the prime minister, finance minister and Little have been pushing for a more compulsory arrangement, New Zealand First leader Winston Peters told RNZ last week he wouldn't play a part in breaking the sanctity of contracts.
In most commercial cases the imbalance of power sides with the landlord but Little said he had heard complaints from both parties.
Some large commercial tenants have declared they will refuse to pay any rent for several months to smaller landlords, while landlords have also demanded full rent from smaller retailers who have been unable to trade at all under alert level 4 and in some cases level three restrictions.
The original Cabinet paper presented to ministers nearly two months ago had no cap on the number of employees per business site, but as a result of negotiations it is now capped at 20.
$40m for arbitration costs
If agreement can't be reached between landlords and tenants arbitration will be subsidised by about 75 percent.
The government has allocated $40 million towards arbitration costs.
After negotiations with New Zealand First, Little said the major change to the legislation was the size of the business that will be eligible.
"So it is focused on those businesses where on a per site basis there are 20 or fewer fulltime equivalent employees, so your basic cafe, small restaurant, retail shop - they'll benefit from this," he said.
The eligibility of larger retail chains with stores around the country will be determined on a site-by-site basis.
"A bigger retail business that has seen all of its sites disrupted will be able to get the benefit of this process,'' Little said.