Property Council chief executive Leonie Freeman said today many large commercial tenants had sent their landlord letters announcing they were refusing to pay rent, with no consultation.
“This move could devastate the commercial, industrial & retail property sectors,” Ms Freeman said, as she called on owners, tenants & the Government to act quickly to support the sector.
She said the sector faced losing hundreds of millions of dollars in revenue, increasing the risk of stalling the economy.
“As property is the home of business, any crisis that affects businesses will also affect property owners,” Ms Freeman said.
“We are hearing of a multitude of scenarios regarding rental payments. At one end of the spectrum there are many landlords working constructively with tenants on their particular situations and discussing rent relief such as postponement or other relief measures.
“However, there are many examples of large tenants sending letters announcing they are refusing to pay rent with no consultation. This move could devastate the commercial, industrial & retail property sectors.
“We will assist the Government in taking immediate action to support property owners through this period. We’re all in this together and have a shared interest in seeing businesses make it through this very difficult time.’
Ms Freeman said one contract clause was of particular concern: “There has been much speculation around the impact of a specific contract clause (clauses 27.5 & 27.6 of ADLS 6th edition) put in place after the Christchurch earthquakes that stipulates that tenants do not have to pay rent should they not have access to the premises.
“Whether or not a tenant’s lease includes this clause, we would encourage owners & tenants to negotiate in good faith what a fair proportion of rent is. This will help ensure that property owners can continue providing a service long after Covid-19 is no longer in the headlines.”
She said the property sector had seen the Government’s reintroduction of depreciation on buildings as a positive move, with a proviso: “However, this is not an immediate cash injection and therefore does not solve the immediate situation of supporting those landlords & tenants needing assistance during this lockdown period.
“In addition, the level to which depreciation on buildings improves a landlord’s position varies significantly, depending on the tax profile of the landlord & the type of building, where retail properties in particular benefit to a significantly lesser extent than other property classes.
“It is simply not enough to bridge the gap in what is becoming a crisis of cashflow for many property owners.
“Support for property owners & tenants could be a targeted subsidy or another form of support package. The next 3 months will be critical to keeping the economy moving.”
Ms Freeman then turned to local measures that could be taken:
“On a local level, our members have also asked that local government look at rates relief and re-consider their proposed rates increases during the upcoming annual plan process. With many proposed rates increases exceeding 5% and some in excess of 10%, the draft annual plans need to be adjusted to a level that is fiscally responsible – ideally at the rate of inflation – leading into a predicted global recession.
“There are a variety of potential solutions that would alleviate the economic impact of Covid-19, but action must come from the top and it must be put in place quickly.
“The ramifications of letting property owners bear the brunt of this crisis are dire. There’s little point in having a tenant survive with the landlord foreclosed on & vice versa. We must work together to get through this period of unpredictability.”
Attribution: Property Council.