Commercial tenant Richard Thomson on why Kris Faafois surprise changes to lease law make sense


I am the managing director of a family-owned retail business with 24 commercial tenancies from Dunedin to Auckland.

All were closed recently for three weeks and our Auckland stores remain so. We continue to pay our staff in Auckland and continue to clock up major occupancy costs there. Eight weeks on, our Auckland landlords – both major corporates – remain of the view that “it is too early to come to a view on any rental assistance”.

I have a broad range of landlords. Every one of the small landlords has come to a negotiated settlement with us for the non-Auckland tenancies. Those that have not (and some of whom currently refuse to even engage in conversation) include international pension funds, one of Australia’s wealthiest families, and sharemarket listed corporates.

The most litigious of them is already targeting some tenants in their Malls with threats of legal action. Shoot one or two as an example to the rest may well be the policy. So, when I read of the concerns of the Property Council about “unintended consequences”, “losing the right to freely negotiate”, and suggesting that the legislation was targeted too widely, you will forgive me if I feel a little cynicism coming on.

Contracts should be sacrosanct goes the mantra. In the last 18 months, in response to a once in a century unprecedented health crisis, we have seen any number of previously assumed social contracts changed. The right to cross our borders. The right to open our business doors. The right to leave our house regardless of need.

The unprecedented nature of the crisis means some things that we have assumed to be social contracts have had to be changed. Contracts will always start from some basic assumptions and, very rarely, those assumptions will change to such a degree that it is reasonable to ask if the contract adequately and fairly reflects those assumptions.

When a business is legally prevented from trading and cannot generate the revenue that would pay its rent, it is reasonable to ask if the contract sufficiently addresses that.

If it doesn’t then there is a place for enforcing a recognition of that. This legislation does that.

Is it really such an extraordinary ask? A large number of commercial leases already include the clause that this legislation intends to imply. The Auckland District Law Society saw fit to include it in its most recent rewrite of the most commonly used lease format. They presumably did so after considerable reflection of “unintended consequences” – and then proceeded.

Yes, it leaves unspoken what a fair determination might look like. But that is sensible. For many commercial tenants being unable to work from the office may be inconvenient but it has little impact on their ability to generate revenue.

Why should a landlord have to compensate them much, or at all, when they have experienced little loss? I am aware last year of landlords held to ransom by a multi-national retailer who decided they were paying nothing and if the landlord took action they wouldn’t have a tenant come lease expiry. That landlord was as powerless as I am as a tenant. This legislation would allow a landlord to have equal access to a fair determination as a tenant. And so it should.

So is there a need? Of my 24 leases, only two are ADSL leases. You will struggle to find a corporate landlord who uses one. They are bespoke and they are silent on this situation. I have been able to reach fair arrangements with many of my landlords regardless of what my lease says. But there are some (all corporates) with who, without legislative support, I have no hope of achieving a fair settlement.

Isn’t this just legislation then for the lowest common denominator? Well yes. But isn’t all legislation? We don’t have laws against murder because we think everyone will go around murdering. It is likely that this legislation will be only rarely required because the existence of it will enable a sensible discussion between most landlords and their tenants where that hasn’t already happened.

There are some things wrong with the legislation. Most specifically it has not been backdated to the start of August. It risks Auckland landlords playing hardball on August closures if they have to play fair on September ones. It does little to assist most tenants in the rest of the country who were closed prior to the September 28. The cost of arbitration will be a disincentive to a solution. Those deficiencies may change through the select committee process.

In the meantime most people will come to fair arrangements. That’s good. Why use legislation when common sense and fairness should get you there instead. But it is also good to know that there is another way when you find you are not dealing with common sense and fairness.

– Richard Thomson is managing director of gift and homeware retail chain Acquisitions which has 24 stores throughout New Zealand including three in Auckland.

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