Retail NZ appeals to Auckland landlords to give rent relief even if they are not bound to

Wednesday, 19 August 2020

A construction worker is served his coffee in a sombre Queen Street as Auckland enters its second level 3 lockdown.

Retail NZ is calling on landlords “to get around the negotiating table” and agree to rent relief with Auckland retailers without a contractual right to that during the level 3 lockdown.

Tenants with the standard Auckland District Law Society lease have a provision in the lease, clause 27.5, that entitles them to pay a proportionately reduced rent if they have no access to their premises and cannot fully operate their business from them.

But many retail leases in shopping centres and leases signed before 2012 do not have these provisions.

Recently the Government proposed an amendment to the Property Law Act to force proportionate rent reduction and arbitration over that but NZ First withdrew its support.

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Retail NZ chief executive Greg Harford says Auckland retailers offering online sales and click and collect were at best operating at about 20 per cent of their usual business.

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Retail NZ chief executive Greg Harford said retailers providing online services and click and collect “were nowhere near operating fully”.

At best, they were operating about 20 per cent of their business so if they had provisions for rent relief they were well within their rights to claim it.

For retail tenants without these provisions, “it really is going to be again a question of negotiation between the parties”.

“I think retailers will certainly be thinking that they need landlords to come to the party with some rent relief because it’s just not sustainable for them,” Harford said.

“We’ve had quite a lot of feedback from our Auckland members on this over the last 48 hours or so. It’s definitely an issue.”

While landlords did not want to take a hit on the level 3 lockdown, they needed to help retailers because retailers in many cases had almost no revenue, or no revenue at all, and they were not in the position to make rent payments.

Campbell Barbour, chairman of the New Zealand Council of Retail Property, says rent relief is the decision of each retail property owner depending on their and their tenants circumstances.

“I think there’s still a number of tenants who are continuing to be in discussions with their landlord about the issue in April and May, so there’s a lot of people who haven’t got through that and now this has hit them.

“This will be kneecapping a number of businesses and everyone needs to get around the negotiating table and come to some reasonable agreement as soon as possible,” Harford said.

The New Zealand Council of Retail Property chairman Campbell Barbour said its members talked to their tenants about rent issues on a case by case basis and worked through a pragmatic commercial arrangement with them, when asked by Stuff what advice would the council give to its members in dealing with tenants without a contractual right to rent relief during the Auckland lockdown.

The council represents more than 100 retail property landlords and shopping centres, some of the largest in the country, with about 5000 tenants.

The realities were these were commercial contracts so each property owner or property manager dealt with their own individual situations and circumstances, Barbour said.

“I just don’t think you can drive a blanket situation for something where there is so many variables,” he said.

Daniel Kelleher, partner at law firm Buddle Findlay, says tenants without any provisions for rent relief in their leases can only hope they have a friendly landlord who might be willing to grant relief.

“What we do want to do is make sure the industry and the sector comes out of this entire period strong and resilient so that’s both property owners and retailers making sure that occurs.”

He noted there had been a retail recovery over the past couple of months.

“We try to make sure there’s a common voice where there needs to be, but at the end of the day it does come back to their own individual circumstances and right down to the micro level of who they are sitting with, their retail partner, and who they are having discussions with,” Barbour said.

For other tenants, Buddle Findlay partner Daniel Kelleher said under level 3 if people can work from home they were required to and “we would see that as enabling people with that clause (27.5) to request an abatement”.

That was the advice Buddle Findlay gave over the last lockdown and that still applied. A few landlords in the first lockdown tried to argue that level 3 did not say that, but Buddle Findlay got most of them over the line, even for a partial abatement.

If a tenant did not have the “no access” clause or abatement was not covered in some other lease provision, then tenants would have to negotiate with “your hopefully friendly landlord who gives you an abatement even though he is not required to”.

The bulk of landlords had been quite responsive during the first level 4 and 3 lockdown.

“So if you don’t have the clause you are at the mercy of your landlord and some will be good and some will be unhelpful.”

If tenants had the Auckland law society lease and were in Auckland and could work remotely they could apply for an abatement. If they could not work remotely and were required to work from the premises then they could seek partial abatement.

Buddle Findlay had clients during the first lockdown where parts of the business were essential, and they partly occupied their premises. Buddle Findlay took the view they were entitled to abatement because they could not fully run their business.

“Some landlords have reacted well to that argument and others have said ‘well even if part of your business is essential that means you’re running your whole business’, so we’re grappling with some of those arguments.”