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Should commercial tenants pay rent during lockdown?

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Commercial property tenants should not cancel rent payments for properties they cannot access during the lockdown without talking to their landlord, the Property Council says.

Commercial property tenants Council chief executive Leonie Freeman said many rental agreements had a clause that stipulated tenants did not have to pay rent if they did not have access to the premises.

But she said widespread non-payment would be crushing.

“We are hearing a multitude of  scenarios regarding rental payments,” Freeman said.

“At one end of the spectrum, you’ve got landlords who are constructively working through with their tenants and discussing options such as rent relief, or postponement or other measures.

“But then at the other extreme, we’ve heard of large tenants who have just announced that they’re refusing to pay the rent with no consultation. This sort of approach can devastate the commercial, industrial and retail property sectors.”

Freeman said despite clauses allowing lots of tenants to legally stop paying rent, landlords and tenants should work together.

“If we have tenants that can’t pay the rent or don’t pay the rent, then the landlords can’t pay their bills and mortgages and things like that. So we need to find a way to keep everybody in the money merry-go-round.

“Yes, there’s a contractual obligation, but what’s the commercial outcome that we’re trying to achieve here? We want all these businesses to still be around at the end of this.”

Commercial property lawyer Charlotte von Dadelszen said the relief available from the government was not specific to tenancies, but it might still help.

“It can obviously be stressful to have tenants who cannot pay rent – especially if the landlord has mortgage payments to make,” von Dadelszen said.

“The banks will be giving mortgage holders whose incomes have been affected by Covid-19 a six-month payment holiday on both the interest and principal of their mortgages, and the Reserve Bank will be helping banks put this in place with appropriate capital rules.”

She said tenants should be careful in their decision not to pay rent.

“Given the unprecedented nature of these circumstances, the best practical step, if a tenant cannot pay their rent (or is concerned that they may not be able to), is to have an early discussion with their landlord.

“Both landlords and tenants should also review their business interruption insurance,” von Dadelszen said.

Freeman said a rental relief scheme would be helpful and the sector would continue to work with the government.

“What we’re proposing is some sort of rent relief, or rent postponement which will help support tenants to be able to pay the rent for this critical period of time it’s early days in terms of solutions but that is the thinking at the moment.”

This article was originally published on 28 March 2020 at https://www.rnz.co.nz/news/business/412831/should-commercial-property-tenants-pay-rent-during-covid-19-lockdown

Question answered 03/05/20 @ 16:18 pm

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