Government launches commercial lease dispute service: find out who qualifies

What is the COVID-19 commercial lease dispute service?

COVID-19 has affected not only human health but every aspect of social and economic life. National and regional lockdowns introduced to control its spread, for example, have caused considerable difficulties for commercial landlords and tenants in New Zealand.

Tenants have sought rent reductions or waivers because lockdown has affected their businesses:

• They cannot access their leased workplaces.
• Their staff are all working from home.
• Their business income has fallen because of the pandemic.
• Government subsidies for employers can only be used to pay wages, not rent.

But landlords facing difficulties meeting loan repayments also have reasons for being unwilling to reduce or waive rent:

• Tenants are still leasing the premises.
• The government has provided no specific subsidy for property owners.
• Property owners must still meet the costs associated with the premises.

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Although some landlords and tenants have reached agreement through compromise, many have had to seek third-party intervention to resolve disputes, inevitably adding to the financial pressure already facing both parties.

To help landlords and business tenants involved in commercial lease disputes arising from the pandemic, New Zealand Justice Minister Andrew Little announced on 30 July that a dedicated, streamlined arbitration and mediation service would be introduced. The Ministry of Justice would subsidise part of the cost of arbitration and mediation for these disputes. The service officially began on 25 September and will continue until March next year.

When is subsidised assistance available?

Subsidised arbitration is available only where the following conditions are met:

• The lease must contain clause 5, which provides that “in exceptional circumstances, if tenants cannot access their leased premises, they may reduce their rent by a ‘fair proportion’”, and
• both parties agree to use the subsidised service to arbitrate their dispute.

If the lease does not contain clause 27.5, the parties may still apply for subsidised mediation if both agree to resolve the dispute through mediation.

Who is eligible for the subsidy?

The subsidy covers arbitration and mediation for rent disputes that meet the following conditions:                                                             

• The parties have not previously reached agreement on rent payments for the relevant lockdown period, when the leased premises were subject to a national or regional Level 3 or Level 4 lockdown.
• The tenant suffered a material loss of revenue during lockdown because of government COVID-19 restrictions.

 A “material loss of revenue” means a substantial decline in revenue, or that the tenant received the government's first or second pandemic wage subsidy.

• At least one party to the lease is based in New Zealand, and there are no more than 20 full-time equivalent employees at each leased location. 

How much funding is available?

Where the eligibility requirements are met,

• arbitration costs will be subsidised by up to NZ$6000 per dispute, including GST. If further work is required, the party seeking arbitration must pay additional service fees of up to NZ$2000.
• Mediation services will be fully funded up to NZ$4000 per dispute, including GST.

For more on the differences between mediation and arbitration in commercial lease disputes, look out for our next article.

About the author

Kai Ling Chiu

Admitted to practise in the High Court of New Zealand and the Supreme Court of New South Wales, Australia, she currently works as a litigation lawyer at Forest Harrison Lawyers. She has extensive experience in debt recovery, contractual and property disputes, with particular expertise in civil and High Court litigation. She is fluent in Mandarin, Cantonese and English. Contact: Kailing@forestharrison.co.nz