COVID-19: Lease in default?  Rent not paid on time?

Intended PLA Law Changes during COVID-19

The Government has announced it intends to change parts of the Property Law Act 2007 (“PLA”) that set out the process for terminating a lease for non payment of rent, and the process a mortgagee (e.g. a bank) must follow if mortgage payments are not made on time.

The changes will cover all notices issued on and after 5 April 2020 and continue until the date 6 months after the end of the government issued COVID-19 Notice period (which is currently 24 December 2020 but this may be extended).

The Government say these temporary changes are part of its wider support package “to support commercial landlords, tenants, and mortgagors through the COVID-19 situation.  They will provide relief for businesses, to help them stay solvent through the epidemic, which will help New Zealand’s economic recovery.” 

Cancelling a lease for non-payment of rent – landlord’s default notice period

  1. Currently the default notice period that a landlord must provide to tenants is 10 working days.  This will be increased to 30 working days.
  2. The changes only apply to commercial leases and not to residential tenancies.

Exercise of mortgagee powers (e.g. power of sale) for failing to make repayments – mortgagee’s default notice period 

  1. Currently a mortgagee must give 20 working days notice to a defaulting mortgagor (usually a borrower) before the mortgagee (usually a bank or other lender) can call up the full loan or exercise the mortgagees power of sale. This will be increased to 40 workings days notice.
  2. A similar extension will apply for the sale of mortgaged goods, which will require a 30 working days notice period (as opposed to 10 working days).
  3. The changes will apply to both residential and commercial mortgages.

It is important to note the changes do not release the tenant or mortgagee from continuing to comply with all of their lease and mortgage obligations.  Rent and interest continue to accrue during the notice period, with penalty interest being chargeable in many cases.  All the changes do is increase the notice period a landlord must give before terminating a lease for non payment of rent, and the notice period a mortgagee must provide before calling up the mortgage and selling the mortgaged property.

In our view the changes will have limited, if any, impact.  In our experience, most landlords and mortgagees already give the tenant or mortgagee time to pay the arrears before a notice is issued.  We anticipate the only impact of the above is to cause the notices to be issued earlier.

The Courts have shown a willingness to protect mortgagors faced with their property being sold during COVID-19.  In March the High Court granted an injunction preventing a mortgagee selling a property during the Alert level 4 lockdown period as it would be impossible reach the best price reasonably obtainable if people were not able to view or attend the auction.

We believe the best option is for the landlord and tenant, and mortgagee and mortgagor to communicate and seek to find a mutually acceptable resolution without the need for formal enforcement action or court proceedings.  Both can be costly, and with court proceedings there is always uncertainty over the outcome.

We are experts in insolvency and property law and have internationally recognised litigators.  We act for landlords and tenants, lenders and borrowers. If you need assistance due to a lease or mortgage being in default, or you have other insolvency issues please contact our team or your usual contact at Hesketh Henry. 

Our comments are based on the Ministry of Justice article and is subject to changes issued by the New Zealand government.

Disclaimer:  The information contained in this article is current at the date of publishing and is of a general nature.  It should be used as a guide only and not as a substitute for obtaining legal advice.  Specific legal advice should be sought where required.

Do you need expert legal advice?
Contact the expert team at Hesketh Henry.
Kerry_100x100 1
Media contact - Kerry Browne
Please contact Kerry with any media enquiries and with any questions related to marketing or sponsorships on +64 9 375 8747 or via email.

Related Articles / Insights & Opinion

Bereavement Leave Confirmed for Miscarriages and Stillbirths 
New Zealand has become the second country in the world to pass legislation that provides bereavement leave for mothers and their partners after a miscarriage or stillbirth.
26.03.2021 Posted in Business Advice & Employment Law
Court of Appeal Overturns Employment Court’s Decision in Tourism Holdings
Tourism Holdings Limited v A Labour Inspector of the Ministry of Business, Innovation and Employment (Tourism Holdings) is the first decision in which the Employment Court considered section 8(2) of the Holidays Act 2003 (Act). The Court of Appeal has recently overturned this decision.
26.03.2021 Posted in Business Advice & Employment Law
Guarantees must be in writing and signed to be enforceable
For a guarantee to be enforceable, the requirements set out in section 27 of the Property Law Act 2007 (Act) must be strictly complied with.  This is what the NZSC held in Brougham v Regan. The key i...
19.03.2021 Posted in Business Advice
UK Supreme Court Delivers Decision on Uber Driver Employment Status
The distinction between employee and independent contractor can be complex, particularly where the nature of the business model blurs the lines of standard employment practices.
16.03.2021 Posted in Business Advice & Employment Law
Holidays Act Overhaul – Taskforce Recommendations
There have been calls for an amendment of the Holidays Act 2003 (Act) for some time.
16.03.2021 Posted in Business Advice & Employment Law
Unwanted Land Covenants and Easements: Seeking a Court Order
The Supreme Court recently considered an application by Synlait Milk to modify a land covenant restricting the burdened land use to farming, grazing and forestry operation to protect the ability of the benefited land owner to develop a quarry.  This article looks at the circumstances in which the courts might give relief to parties in an application to extinguish or modify a covenant or easement.
15.03.2021 Posted in Property Law
New ICC Arbitration Rules 2021 come into force
The revised International Chamber of Commerce (ICC) Arbitration Rules for 2021 (2021 Rules) have now come into force and apply to all ICC arbitrations begun after 1 January 2021.  While the new Rules...
10.03.2021 Posted in Litigation & Dispute Resolution
Send us an enquiry
For expert legal advice, please complete the form below or call us on (09) 375 8700.
  • This field is for validation purposes and should be left unchanged.