Do policies favour tenants? Do landlords have nowhere to turn? Experts offer ways to resolve tenancy disputes during the pandemic

Different support policies for landlords and tenants

Since taking office, the Labour Government has repeatedly amended tenancy policies to strengthen protections for tenants. On 25 March, it passed emergency legislation freezing rents for 6 months and banning tenant evictions for 3 months, effective immediately, to ensure renters had somewhere to live during the pandemic and economic crisis.

However, it would be unfair to conclude that the Government has given no consideration to landlords’ interests. It has also introduced a mortgage repayment deferral scheme, allowing landlords whose incomes have been affected by the pandemic to apply to defer their home loan repayments. Under the current policy, borrowers can defer repayments for 6 months before resuming them.

However, York Zhang Yong, general manager of Huarong Credit, offered this particular caution: Think carefully before applying for a deferral, weighing up all the advantages and disadvantages.

Deferring mortgage repayments is no free lunch

 

York Zhang Yong offered some tips on applying for a mortgage repayment deferral:

• During the deferral, the bank will continue charging interest and adding it to your loan balance. Although the maximum deferral is 6 months, choosing a shorter period reduces the impact of the increase in principal.
• Once the deferral ends, you must either increase each repayment or extend your loan term.
• Because interest is added to the balance, you will pay more interest overall than originally planned.
• If you extend your loan term as a result, the maximum term is 30 years from the drawdown date.

 

He believes a repayment deferral can ease landlords’ financial pressure in the short term and provide a temporary way through their difficulties. However, applications require careful consideration, because after 6 months, repayments will be higher or the loan term longer. A deferral may also affect applicants’ ability to obtain a new mortgage over the next year or two.

York Zhang Yong therefore recommends that people whose incomes have been directly affected by the pandemic, but who retain some ability to service their loans, keep making repayments on time wherever possible rather than following others in choosing a mortgage repayment deferral. Applying for interest-only repayments may also be a better way to ease the pressure.

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Paying the rent requires effort from both sides

With mortgages still to pay but their rights as landlords restricted, it is little wonder property owners feel they have no way to voice their difficulties. Yet there are two sides to every coin.

Explaining the new legislation, Housing Minister Megan Woods emphasised: “Tenants must not abuse these provisions. Refusing to pay rent when they can afford to, causing serious property damage or engaging in serious antisocial behaviour is unacceptable. While we are ensuring landlords do not increase the burden on tenants, tenants remain fully responsible for rent and any damage.” In other words, Just as landlords have no right to raise rents, tenants have no right to pay less rent or withhold it。

Although the law defines landlords’ and tenants’ respective rights and obligations, Susan Zhu Xudong, a senior lawyer at K3 LEGAL, recommends that during these exceptional times, landlords and tenants consider their respective financial needs and negotiate in a spirit of mutual support when tenants genuinely struggle to pay rent because of the pandemic, seeking the best possible outcome.

• Where necessary, landlords can help tenants apply for government assistance.
• Landlords can agree with tenants to reduce, waive or defer part of the rent for a limited period, while requiring tenants to make up the difference later.

 

The difficulties of being unable to access workplaces

Compared with residential tenancy rules and the amounts of rent involved, commercial property clearly presents a more complex situation, with more pronounced conflicts between landlords and tenants.

Tenants’ reasons for seeking rent relief:

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

Landlords’ reasons for refusing rent relief:

• Tenants are still leasing the premises.
• The Government has provided no special subsidies for landlords.
• Landlords must still meet the costs of the premises.

At the heart of these seemingly irreconcilable conflicts are usually clauses 27.5 and 27.6, included in some standard commercial Deeds of Lease. These provide that In exceptional circumstances, tenants unable to access their leased premises may receive a reduction in rent by a “fair proportion”. The national state of emergency at alert level four clearly meets this definition.

Some tenants have consequently written to landlords declaring their right to withhold rent during lockdown. Some landlords, meanwhile, have firmly told tenants: our lease does not contain these clauses, so do not expect a rent reduction.

 

Zhu believes landlords and tenants, interpreting these clauses from their own perspectives, may fall into the following misconceptions:

• Because the lease contains the relevant clauses, tenants can unilaterally declare that they will stop paying rent.

The correct interpretation: Tenants cannot unilaterally stop paying rent or pay less. Any rent relief must be agreed between landlord and tenant to be valid. Otherwise, landlords have the right to seek arbitration or even take legal action.

• The clause allows tenants to request a rent reduction based on a fair proportion (Fair Proportion).

The correct interpretation: To establish what constitutes a fair proportion, tenants need sufficient evidence showing the extent of the financial loss directly caused by their inability to access the premises, and must obtain the landlord’s agreement. If the matter goes to arbitration, a professional body will produce an assessment of the tenant’s direct financial loss, which will form the basis for determining the proportion of rent relief.

• If negotiations over rent relief fail, tenants can seek to terminate the lease under a provision covering an inability to continue performing the lease through no fault of either party.

The correct interpretation: Commercial leases are usually long-term contracts. Against a lease term spanning years, a lockdown lasting a few weeks does not constitute grounds for being unable to continue performing the agreement. The lease therefore cannot be terminated.

• If the lease does not contain the above clauses, landlords can firmly reject tenants’ requests for rent relief.

The correct interpretation: This is certainly lawful, but landlords need to consider whether it serves their financial interests. Both parties’ financial difficulties may be temporary, while a good relationship with tenants supports long-term cooperation. Keeping a familiar, friendly long-term tenant is clearly more beneficial to landlords than finding a new one.

How, then, should commercial landlords and tenants resolve this seemingly irreconcilable conflict? Zhu recommends considering the legal, financial and moral dimensions together, with both sides making concessions and working through the difficulties together.

• Discuss rent relief thoroughly and seek agreement.
• If agreement cannot be reached, consider deferring payment of the disputed difference, giving tenants breathing space while avoiding financial losses that landlords cannot afford.
• Landlords can seek help from relevant property owners’ organisations. Property Council New Zealand, for example, is currently negotiating with central and local government on behalf of commercial property owners nationwide to secure targeted financial assistance. Its website is worth following.
• Landlords are hoping for further government tax measures, such as local councils reducing council rates or foregoing increases next year.