Property Law Act changes: oral submission

Yesterday, Property Council chief executive Leonie Freeman and National Chair Scott Pritchard presented our submission on the COVID-19 Response (Management Measures) Legislation Bill to the Finance and Expenditure Committee.

Below is a synopsis of her presentation, with the full broadcast available to watch here.

Good morning, Mr Chair.

Thank you for the opportunity to present today on behalf of Property Council New Zealand.

I am joined by Scott Pritchard, Chair of Property Council New Zealand and CEO of Precinct Properties.

We represent over 10,000 property professionals, over 550 member companies across commercial, industrial, retail and residential property.

COVID-19 has been tough for everyone. Business suffers particularly because, through no fault of their own, they are left to shut up shop or work from home where they can. When it comes to the retail and service industry, its much tougher – the uncertainty around returning back to work and the inability to trade puts a lot of stress on business owners and staff. The same can be said for landlords as fixed costs like mortgages, rates and maintenance still need to be paid during a lockdown.

It is cashflow that is the fundamental issue for business – and we all want the same outcome – that both landlords and tenants survive lockdown.

However, rather than target those who need that support, the proposed changes to the Property Law Act 2007 take a sledgehammer to a very nuanced and complex commercial lease environment.

The Department of Prime Minister and Cabinet noted in their disclosure statement for the bill, that “the size and scale of this problem is not clear.”

We believe that the vast majority of landlords and tenants have done the right thing over the past 18 months and negotiated and agreed fair and equitable adjustments to rent in instances where it was necessary and prudent.

We know, as in many things in life, there are always a small number of landlords and tenants who have shown some poor behaviour. All of which we don’t support. 

To provide an indication of efforts so far, a survey conducted by Property Council of 200 member companies indicated they have given over $650m in rent relief to Kiwi businesses. Feedback indicated that landlords had provided rent relief regardless of whether tenants had a no access clause or not. Research undertaken last year showed that 90% of landlords and tenants came to an agreement on rent relief.

On top of this, the draft legislation is ambiguous and vague.

As it stands, a business which has suffered no-financial loss during lockdowns could seek rent relief; government departments and other public sector entities could seek a re-negotiation of their terms, and we could have small New Zealand landlords subsiding large multi-national and international retailers producing record profits.

This does not seem fair.

I want to focus with the limited time we have, on our recommendations.

In its current form, we recommend that the rent relief clause does not progress. We don’t think it is workable and we don’t think it is acceptable that the only eligibility criteria in the proposed bill is the requirement to not already have a rent relief agreement or a no-access clause in the lease.

What we know is professional services, lawyers, and banks over the last five years have re-engineered their businesses to be able to work remotely and we have seen in publicly disclosed documents that financial results have improved during this period. It is clear they have not suffered a loss as a consequence of not being able to access their premises.

If the clause does progress, we recommend the following changes:
The first recommendation is to clear up drafting ambiguities with a simple two-step process so that it targets those in need. The first step is an eligibility criteria for rent relief which limits it being sought to Alert Levels 4 and 3, and being able to prove the following: 

  1. That they are a New Zealand owned business; they aren’t a public sector entity such as govt or Council; they’re an SME which might have fewer than 20 employees or a turnover of say less than $25m, and;
  2. That they are eligible for the wage subsidy, showing economic loss.

The second step is a set of considerations for what is a fair proportion of rent. It’s not defined in the Bill and we think there should be more parameters around what fair is, including:

  • Economic loss, considering online and click and collect sales
  • ability for a business to operate remotely, and;
  • consideration of the potential bounce back in sales once the physical premises reopens.

The next recommendation is a set of other policies including more targeted business payment support for vulnerable businesses to deal with immediate cashflow issues, mandatory communication timeframes to resolve disputes, other options for rent relief using the tax system and a landlord hardship fund based off the Australian model.

The final recommendation is that the Committee seek an extension of time to adequately assess the implications of the draft clause until 14 November 2021 because of the extremely short timelines for considering this complex piece of legislation.

Thank you for your time.

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