Commercial Leases to receive Arbitration Subsidy

Commercial Leases to receive Arbitration Subsidy

On 30 July the Government released an announcement stating that it will provide $40 million to fund arbitration to help assist commercial lease parties settle rental disputes that occurred over lockdown.

The arbitration service is said to now be 7 weeks away, it will apply to small to medium businesses who suffered an economic loss through lockdown and are now seeking rent relief. Further detail about eligibility can be seen on the Ministry of Justice Website.

Implied clause for commercial leases

Despite earlier assurances, this funding does not accompany a change in the law. In June, a Cabinet Minute proposed a temporary amendment to the Property Law Act which would have created an implied term requiring a fair rent reduction during lockdown.

For more about the Cabinet Minute see our previous article here.

What will inform an arbitrator’s decision?

In absence of the proposed implied term, parties’ rights and obligations will be defined under the terms of their lease. The arbitrator will not be able to read in a provision of fairness unless the agreement expressly provides for it.

Standard REINZ-ADLS deeds of lease created after 2012 include a provision for fair rent reductions whereas other leases may not. Even with the requirement of fairness, it will be difficult to predict how an arbitration will result as arbitrators will have no guidelines on what is fair in the circumstances. There can be no reference to the proposed change in the Property Law Act if the legislation was never passed. Minister of Justice Andrew Little reinforces the need for parties to strive to reach a fair compromise, stating:

I continue to encourage businesses and landlords to work towards reaching a fair agreement on the payment of rent and using this funding to access mediation and arbitration services if that helps.”

Given the lack of legislative guidance on the issue it will be worth following the latest proposal to see whether fair outcomes can be reached through arbitration. Commercial lease parties that are in dispute about rent during lockdown are likely facing financial difficulty and a further 7 weeks for the arbitration service to become available is likely going to compound this difficulty.

See the recent government announcement here.

If you need any more detail on how these changes will affect your organisation then contact our Corporate and Commercial Law Team.

Author: Annie Prosser