Many commercial tenants found their leases were inadequate to deal with the consequences of the COVID-19 restrictions. In a welcome step, the Government has established a scheme allowing parties with a qualifying dispute to access fully subsidised arbitration or mediation services (the Scheme).
Commercial leases without solutions
For those who have commercial leases, there were questions around whether there is a right for tenants to obtain rent relief as a result of the COVID-19 lockdown restrictions and, if so, what that relief should look like. Some leases contained a clause allowing a fair proportion of rent to be suspended during an emergency situation, but it was not clear what a fair proportion might mean. Other leases did not expressly provide for any reduction of rent in such circumstances.
When we wrote about this previously, we explained how arbitration or mediation could help parties reach a resolution. The usefulness of alternative dispute resolution has clearly been recognised by the Government.
Qualifying disputes and eligibility criteria
The Government’s initial proposal announced in June to amend the Property Law Act 2007 to allow for COVID-19 rental disputes to be referred for arbitration or mediation has had an overhaul. The Government has now put in place a fully funded dispute resolution scheme for qualifying disputes where landlords and tenants meet the eligibility criteria.
A dispute will qualify if:
- the dispute it is about the payment of rent and outgoings, where the tenant has experienced a material loss of revenue during a lockdown period because of Government lockdown restrictions put in place to combat COVID-19; and
- the payment of rent and outgoings during the relevant lockdown period has not already been the subject of an agreement or arbitral award between the parties to the dispute.
The eligibility criteria are clearly aimed at supporting smaller, New Zealand businesses. As a result, there are two eligibility criteria that must be met before parties can access the subsidised Scheme:
- the landlord and tenant must have a New Zealand based business; and
- the business must have 20 or fewer full-time equivalent staff:
- in the case of the tenant, per lease site;
- in the case of the landlord, in total.
Parties who wish to access the Scheme must agree to do so, whether they wish to arbitrate or mediate. Agreement is required even if the parties already have an agreement to arbitrate or mediate in the lease document.
Mediation and arbitration by NZDRC
NZDRC is providing fully subsidised arbitration and mediation services as part of the Scheme. As a result, no fee will be payable by the landlord or tenant. Those who wish to take advantage of the fully subsidised Scheme will need to apply no later than 31 March 2021.
For lease parties who do not meet the eligibility criteria, NZDRC can still offer you low cost and fixes fee arbitration or mediation services.
To learn more about your options, and the difference between mediation and arbitration download our Introductory Guide.
How to access the NZDRC services
Whether parties choose to arbitrate or mediate, they will need to agree to engage in that process. This can be done by completing the special form agreement to arbitrate or special form agreement to mediate, copies of which may be downloaded below: