We have become very familiar with lockdowns. The livelihoods of many Aucklanders are at risk. We have been in Level 3 or 4 since 17 August, which is 66 days and counting at the time of writing. How long will this lockdown restrict the movement of people and the ability of businesses to trade? Landlords and tenants have once again been navigating the lockdown levels imposed by government.
DABS Consulting Ltd (DABS) manages approximately $16 million in rent roll across 12 commercial properties, including approximately 60 tenants on behalf of limited partnerships. Our investors trust us to grow their income, manage their property to a high standard and deliver investment performance. During this difficult time, investors also appreciate we must balance the requests from our tenants for rent relief, acknowledging that it is important that our occupiers have sustainable businesses in the long term.
I grew up on the North Shore but back in March 2020 I was living in the UK. I recall sitting with my children on a park bench near London and being asked by a police officer if I had finished my daily exercise. We were encouraged to head home as there had been over 1,000 deaths recorded that day. A staggeringly high number when you let that sink in. You could say our lockdown journey is only now being properly understood, as daily case numbers start to climb in New Zealand. However, for a comparatively small country like New Zealand the impact of lockdowns has been felt deeply. How are landlords and tenants engaging during this challenging time?
“Contrary to media reports many landlords, including DABS, have successfully negotiated rent relief with their tenants, taking into account their specific circumstances.”
After the Christchurch earthquake in 2011, the Government introduced a new ADLS (Auckland District Law Society) lease, the most common commercial lease in New Zealand. This updated lease included a clause providing for a fair rental reduction when a tenant is unable to access their premises to conduct their business in an emergency. The lockdown response to Covid falls under this definition and is considered an emergency. The inclusion of this clause was not intended to be prescriptive, but to enable both the landlord and tenant to consider what is fair in the circumstances. Where a tenant's revenue has been impacted, property owners and managers have been engaging with their tenants and in the majority of cases, achieving mutually acceptable outcomes on rent relief – regardless of whether the lease contains the relevant clause. Recently, the Government has set out to mandate the negotiation process, which we believe goes against the strong landlord and tenant relationships that have been established and further consultation with the property industry is needed.
“….we haven’t had a tenant failure as a result of the imposed lockdown measures. We would like to think that our rent relief assistance had a part to play.”
While we have been working from home, we have been engaging with our tenants. There are many considerations when discussing rent relief. All businesses are eligible to apply for government relief. To qualify for the wage subsidy, all businesses and self-employed people must expect a 40% decline in revenue. In addition, there is Covid Resurgence support, which requires a 30% decline in revenue or capital raising ability. Childcare centres also continue to receive a large proportion of their government subsidy during lockdown. As a first step, it is important for us to understand whether our tenants qualify for government support.
Many office occupiers have had time to adapt and pivot their business model to adjust to lockdowns, and many people are able to work from home. Only recently have most UK offices reopened their doors, after approximately 18 months working at home. Although Covid has not been eradicated by any means, the relatively high vaccination rates led to a decision by the UK government to live with the virus.
As you would expect, lockdowns are particularly difficult for independent operators and small businesses. This includes hairdressers, children’s soft-play venues, dance studios, restaurants and cafés. As part of our review, we also consider online purchasing options including the ability to provide a click and collect service. Many cafés and restaurants have looked to improve their online menus and provide a takeaway service. To date, we haven’t had a tenant failure as a result of the imposed lockdown measures. We would like to think that our rent relief assistance had a part to play.
Contrary to media reports, many landlords, including DABS, have successfully negotiated rent relief with their tenants, taking into account their specific circumstances. We are balancing requests for rental relief from occupiers, meeting the expenditure of non-recoverable costs (including loan interest), forecasting incentives for new leasing deals such as contributions to tenant fitouts and doing our best to continue monthly distribution payments. Many of our investors are retirees who rely on a monthly distribution to meet their living costs. We are proud of the engagement we have with our investors and tenants and we will continue to work with them during this challenging time.
For further information or to discuss our current investor offer please contact:
Lara Weaver, General Manager
e. lara@dabsconsulting.nz
m. 021 230 5989
145 Kitchener Road, Milford
www.dabsconsulting.nz
