The Finance and Expenditure Committee has now recommended (by a majority) that the COVID-19 Response (Management Measures) Legislation Bill containing the measures be passed. The Committee has also made a very limited number of recommendations in its report. The next step will be for Parliament to now consider the report before the legislation is enacted.
The Committee noted “the challenges” posed by the speed at which the proposal progressed - the Committee had just over two weeks to consider the bill, consider 200 submissions (including 41 submissions by videoconference) and report back. Apparently a number of submitters questioned whether the urgency was necessary, but the majority of the Committee considered it was, given the extenuating circumstances.
The Committee stated that the new implied term should emulate clause 27.5 of the ADLS lease, and so provide for a fair proportion rent (and outgoings) abatement in circumstances where an epidemic means the tenant cannot access the premises to fully conduct its business. Submitters pointed out that inability to access the premises may be no indicator of profitability, but the Committee considered that this was an issue which could be considered in determining what constitutes a “fair proportion”.
Many submitters also suggested that a tenant should have to meet eligibility criteria, before being able to claim a rent abatement, such as claiming the wage subsidy and being New Zealand owned. The Committee said that it “struggled with.......criteria to determine eligibility for relief” and felt that it would be very complex to apply these criteria. No criteria were therefore recommended.
We have previously commented that it is surprising that the government had not provided more guidance on what is meant by a “fair proportion” rent reduction. A number of submitters to the Committee suggested that the implied term should include criteria to assist parties in determining what a “fair proportion” rent reduction would be. The Committee said that official guidance is being developed as to how a “fair proportion” would be assessed and it is better that the legislation is flexible. This is a disappointing outcome, as this was an opportunity to provide some guidance to parties and so minimise disputes, and the official guidance will have no legal force. The Committee pointed out that clause 27.5 of the ADLS lease does not have criteria for determining “fair proportion”, but this was an opportunity to improve the ambiguity of that particular wording.
We had commented that the bill was unclear as to what date the implied term would apply from. The Committee has recommended that Parliament consider this issue further. Some committee members considered the implied term should apply from 28 September (the date the bill was introduced) whilst others considered it should apply from 18 August. Certainly the current bill lacks clarity on this point, as we had previously considered that the implied term would apply to any rental period that includes 28 September (and therefore potentially all of the rent payable from 1 to 30 September).
The Committee also recommended that officials review the type of leases which should be covered by the implied term. Some submitters suggested that ground leases and triple net leases should be excluded from the legislation, on the basis that these afford the lessee an interest similar to that of freehold ownership.
Finally, the Committee was receptive to the idea that mediation could be used for disputes, as an alternative to the more costly process of arbitration. However as mediation would only apply where both parties agree it is not a significant change. The Committee also supported a suggestion from the Auckland District Law Society that parties could seek an expert adjudication of a dispute, using the type of process that applies to construction contract disputes.
The Committee has not suggested many changes to the proposed implied term. The only changes that may occur are:
- the term may apply from 18 August 2021;
- certain types of leases may be excluded from the legislation; and
- alternatives to arbitration may be included for disputes, although presumably only with the parties’ agreement.
It also seems that some official guidance will be issued to assist with determining what a “fair proportion” reduction is in any particular circumstance, but this guidance will have no legal standing and so will be of limited assistance.
If you have any questions about the matters raised in this article, please get in touch with the contacts listed, or your usual Bell Gully adviser.