Landlords may be forced into arbitration if they cannot agree to cut rents to tenants affected by Covid restrictions, under surprise changes announced- and to come into force – today.
Justice Minister Kris Faafoi announced that as part of the Covid-19 Response Legislation Bill introduced to Parliament, measures were being taken “to help businesses resolve disputes over commercial rent”.
The changes are set to be introduced into Parliament and come into force today, irrespective of when the legislation is passed.
While the Government has not explicitly ruled out changes to commercial tenancy rules, it had not flagged the changes.
During 2020 the Government made repeated efforts to force arbitration on landlords who refused to cut rents, but failed to do so
“We have heard the concerns from business operators unable to meet full rental costs while their incomes have been hit by Covid restrictions needed to contain the spread of the virus,” Faafoi said in a statement announcing the changes.
“Therefore an amendment to the Property Law Act is proposed to insert a clause into commercial leases requiring a ‘fair proportion’ of rent to be paid where a tenant has been unable to fully conduct their business in their premises due to the Covid-19 restrictions.
“Landlord and tenant would need to agree on the amount of rent that is fair. They could also agree that the clause does not apply,” Kris Faafoi said.
A statement said arbitration will be required “where landlords and tenants are unable to come to an agreement about a fair rent proportion, unless they agree to an alternative dispute resolution process such as mediation”.
The implied clause would take effect from today, 28 September 2021.
“The proposed law change would only apply to leases which do not already provide for adjusted rent payment terms during an epidemic emergency. Therefore, agreements made prior to 28 September 2021 to adjust rent obligations to reflect the Covid-19 situation would not be affected by the implied clause,” Faafoi said.
‘A couple of holdouts’
During the first Covid-19 lockdown, as commentators feared a deep and prolonged recessions, a number of retailers complained that they could not convince landlords to offer concessions.
Faafoi acknowledged that this time, as last time, deals had been reached covering the vast bulk of leases, but a few had not.
“I think there have been, essentially, a couple of holdouts in the latest outbreak that haven’t seen fit to find a fair resolution and this change will, essentially, force them to do that, if there is a lockdown.”
The changes “will send a signal that we want, when there are high alert levels, both landlords and tenants to come to some form of fair arrangements”.
Faafoi said the Government would not be funding the arbitration, as it had proposed to last year as “that will incentivise people to, again, not come to an arrangement”.
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