State moves to consider rent support in the commercial sector met with mixed reaction after Justice Minister Andrew Little said the Government was considering options to support New Zealand businesses with rent payments.

Leonie Freeman, chief executive of the Property Council representing big-time landlords, welcomed the move.

The Government had listened to the property and wider business sector, long calling for support for commercial tenants.

"But we do have concerns that a one-size-fits-all approach could have negative repercussions for both landlords and tenants. We continue to encourage that both parties negotiate in good faith in an open, honest and transparent manner. We are all in this together and everyone must share the pain," she said.

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While the Auckland District Law Society emergency clause was not perfect, by stating that a fair proportion of rent is to be paid it at least allowed for those who negotiate in good faith to find a solution that is uniquely suited to each individual tenant, she said.

"There have been many reports that not everyone is negotiating fairly, with some large commercial tenants and landlords taking a staunch position, which doesn't help anyone at this time," she said.

It was imperative that business continued to function, but property owners were businesses too and asking them to bear the brunt of this economic crisis would only lead to further troubles, she said.

"If the Government had properly considered our earlier proposal to provide support to tenants and offer much-needed cashflow to the property ecosystem, we would have been far better positioned over the lockdown period and in the coming months. It seems very late in the piece to be making changes to the Property Act now – which could have long-term effects - when many tenants and landlords have already begun or completed negotiations and a move to Level 2 and full operation is only a week or so away," Freeman said.

Mark Lister of Craigs Investment Partners said one part of the property investment sector could need support but Jordan Williams of the Taxpayers' Union opposed it.

Lister said one segment of the property sector could be at highest risk.

"I worry more about many of the property syndicates around the country that less sophisticated and income-focused investors have flocked to. They're usually smaller, with lower quality properties and less reliable tenants," Lister said.

But Williams said: "We are inherently uncomfortable with government intervention into agreements between commercial parties. Interfering with consumer contracts where there is a power imbalance is one thing, but to interfere with leases between commercial parties is quite another. It would be similar to interfering with fixed interest rate contracts. Where would it end?"

Commercial lease arrangements were best left to the parties, not politicians, Williams said.

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"A hard nosed landlord who won't come to the party with rent relief for a struggling tenant may soon find they don't have a tenant at all. That trade-off is something every landlord is going to have to face," Williams said.

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Others in the sector have expressed worry about single-asset syndicates too, saying mum and dad investors could lose money if tenants default on rent payments.

"Some of these syndicates are very highly indebted as the syndicators have used lots of debt to try and boost the income yield in the hope of making them more attractive to investors," Lister said.

"This is a dangerous combination in an environment this where rents are stagnant or falling, valuations are under pressure, and vacancies are rising.

Syndicates are often highly illiquid which means people can't get their money out. At least the listed sector is big, well-diversified, and has access to additional capital if it should be needed. Investors can also exit a portion of their holding quickly and easily if they so desire.

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Lister said it was important that landlords shared the burden of Covid-19 fairly with their tenants.

Mark Lister of Craigs Investment Partners. Photo / John Borren
Mark Lister of Craigs Investment Partners. Photo / John Borren

"Some commercial property owners seem to believe that they are immune to all this, and that they will sail through with minimal impact on rental income or property values. That was never going to be the case, even without the initiatives this announcement implies," Lister said.

Property was not immune to recessions. A weaker economy, tenants facing challenges, lower spending and higher unemployment will all impact property just they will many other sectors, he said.

"The local listed property sector is in reasonable shape, and a few have actually raised capital in recent times so in general terms they are well-positioned and balance sheets are strong.

"I think it is those with retail exposures that are probably most likely to suffer, with office property owners also likely to feel some impact and industrial landlords arguably best placed, particularly those exposed to distribution for large companies or essential services," Lister said.

But smaller operators and those with lower-quality buildings or high debt levels could find themselves in a more difficult position.

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Andrew Little said today that while 75 per cent of the economy was up and running again under level 3, many businesses, especially smaller ones, have been hard hit by a drop in revenue and are struggling to meet their fixed costs.

"So, to add to the wage subsidy and other support in place, Cabinet Economic Development Committee ministers today discussed options around changing the Property Law Act to support New Zealand businesses in managing their rent," Little announced.

"This includes how parties to a commercial lease would be expected to consider rent concessions in whole or in part for a period where the response to Covid-19 has had a material impact on a business.

"The lockdown has affected businesses in different ways and it wouldn't be fair to have one solution - like a rent freeze - for every situation, especially when in many situations landlords have already agreed to rent reductions. Landlords need to share the burden of Covid-19 fairly with their tenants," Little said.

"We had heard the call to subsidise rent or to freeze rents. However both of these approaches would have meant commercial property owners would have had their income protected at a time when no one else enjoys that privilege," Andrew Little said.

"The Property Law Act and the Residential Tenancies Act are entirely different pieces of legislation, with different types of rights and case law. We have already announced we will amend the Property Law Act 2007 to push out deadlines on lease terminations, but it is clear from information we have received this alone is not enough in many cases," he said.

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Covid19.govt.nz: The Government's official Covid-19 advisory website