As businesses battled to stay afloat during Covid-19, the Government set aside $40m to help them resolve rent-related disputes with landlords - but only a tiny fraction of that had been used as the scheme drew to a close
A government scheme to settle Covid-related commercial rent disputes fell significantly short of its initial budget, with criticism over delays to its launch and overall effectiveness.
Last September, the Ministry of Justice opened access to the voluntary scheme where landlords and tenants who had “experienced a material loss of revenue” during lockdown could enter arbitration or mediation over any rent disputes.
The six-month scheme, which wrapped up last week, was a response to cases where landlords were demanding full rent payments from businesses unable to operate due to Covid-19 restrictions.
But by the end of February, one month before the scheme closed, just $190,000 had been spent on arbitration and mediation services - less than 0.5 percent of the $40 million allocated.
A total of 29 cases had started arbitration or mediation, although not all of those were to completion due to the voluntary nature of the process or early resolutions, and only 15 disputes had been settled through the scheme.
Victoria McLaughlin, the Ministry of Justice’s group manager for commissioning and service improvement, said the “complex and unpredictable nature of Covid-19” had made take-up of the service difficult to predict, but its priority had been ensuring there was support available for those who needed it.
McLaughlin said the ministry had not received any direct feedback from the scheme’s participants about its accessibility, but suppliers had indicated a failure to meet the eligibility criteria was a common issue for those who could not use it.
“Suppliers have also advised that they have received some enquiries from tenants that indicate it is a challenge for them to obtain agreement from the landlord to participate in the process.”
Efforts to tackle the issue last June sparked a bitter war of words within the Government, after former Justice Minister Andrew Little had to backtrack on plans for a compulsory arbitration process when New Zealand First indicated it would not support the law change.
Little accused the party of going back on its word, while New Zealand First leader Winston Peters cited the sanctity of contract law and said the contents of the legislation were different from what it had been told.
Bell Gully partner and commercial property lease expert Jane Holland told Newsroom she did not know of any landlords or tenants who had used the scheme, and believed the lack of use reflected both its belated establishment and the fact there were fewer problems than some had feared.
“When it came to it, most landlords and most tenants acted reasonably, and most disputes ended up being settled relatively easily.”
Holland said the rent abatement clause in many commercial leases had not been drafted with a pandemic-induced ‘lockdown’ in mind, which meant people were “initially feeling their way through” what the clause meant in the circumstances and how it should be applied.
While it was relatively easy to apply the clause to Level 4 lockdowns, there was still uncertainty around Level 3 and whether or not tenants in sectors like hospitality could “fully conduct” their business.
It was likely that both landlords and tenants would seek to develop greater clarity about how the clause would apply in future to similar events, she said.
“We thought it was a half-baked scheme that wouldn’t work, and that wasn’t only our opinion.”
National Party finance spokesman Michael Woodhouse said the limited take-up was a reflection of the months-long delay in getting the initiative off the ground and its minimal value to struggling businesses.
“We thought it was a half-baked scheme that wouldn’t work, and that wasn’t only our opinion.”
While it was difficult to assess how the delay had affected businesses, Woodhouse had heard anecdotes of landlords and tenants who had been unable to reach agreement on rent reductions - particularly in tourist hotspots like Queenstown.
National had advocated for more direct financial support to businesses on top of the wage subsidy, a position he believed the Government had adopted in part through its “resurgence support payment” following February’s Auckland lockdown.
Kris Faafoi, Little's replacement as Justice Minister, said the mediation assistance was part of a "suite of supports", including the wage subsidy and small business cashflow schemes, to help businesses through the height of the Covid emergency response.
"Having spoken with the New Zealand Law Society since taking the justice portfolio, I was encouraged to hear that, from the NZLS’s experience, there has been meaningful engagement between tenants and landlords and the parties have largely taken a pragmatic approach to rent negotiations," Faafoi said.
A one-size-fits-all approach to rent abatement would not suit all situations, with tenants and landlords in the best position to negotiate specific solutions.
