Arbitrating Rent Disputes in CoVid-19

The Government this morning has announced a new  series of measures to provide relief to commercial tenants who have been caught by the CoVid-19 lockdown.

For many small to medium businesses, the ongoing commitment to rental outgoings is a significant cost.  Support has been provided for wages, but to date tenants have been left to rely either on the rent reduction clause in the ADLS form of lease (if it applies) or their ability to negotiate with their landlords.  Conversely, landlords have been put into the invidious position of protecting their rental streams at a time when many businesses face an uncertain future.

The new measures announced by the Government seek to level the playing field:

  1. for a temporary period, the new clause will be implied into all commercial leases providing for “a fair reduction in rent” where a business has suffered a loss of revenue because of CoVid-19
  2. the Government will invest up to $40 million to provide access to arbitration
  3. to be eligible, tenants must employ 20 full time staff or less at the affected premises
  4. guidelines will be provided for the purpose of establishing a “fair rental”
  5. the support will take the form of a subsidy of $6,000 per arbitration
  6. arbitral awards will be subject to appeal in terms of clause 5 of Schedule 2 to the Arbitration Act 1996 (ie, for error of law)
  7. the package will have retrospective application to today’s date

Much of the detail is still to be released.  It is hoped that the Government takes a light-handed approach to the proposal, leaving it to the parties to apply the existing procedures under the Arbitration Act, including the appointment of arbitrators either by agreement or by he Arbitrators’ and Mediators’ Institute of NZ under Article 11 of Schedule 1 to the Act, and the arbitral procedure to be adopted.

In his press release, Minister Little commented:

“What is required is fairness between commercial tenants and their landlords. That is why the Government is moving to ensure there is appropriate rent relief, with the burden shared by landlords, tenants, and the Crown.”

Used proactively, arbitration has the potential to resolve such disputes, whether they meet the criteria for Government assistance, or the full costs are met by the parties.  What will be needed is a willingness on the part of the parties and the arbitrators to use the process to achieve a prompt and fair result.

Yesterday’s  Cabinet Paper has been released.

John Walton