Covid-19

Pay up, mega shopping mall landlord warns tenants

As small businesses fight for their survival in the Covid-19 lockdown, it seems one of the country’s biggest retail landlords is not keen to share the pain.

On the one side, you have Jonathan*. Jonathan runs a small business out of South Auckland’s Sylvia Park - New Zealand’s biggest mall. He’s about half way through a six-year lease and business was going okay until Covid-19. 

He reckons he will survive lockdown, as long as it doesn’t go on for more than a couple of months. But he has children, and staff with children, and he’s worried. 

He knows building up his business will be tough.

On the other side you have Kiwi Property Group, Jonathan’s landlord. Kiwi Property owns $3.2 billion-worth of retail and office property, including Sylvia Park and other malls in Auckland, Hamilton, Palmerston North and Christchurch. 

The company, listed on the New Zealand Stock Exchange, made $138.1 million profit in the 2018-2019 financial year, the most recent numbers available, up from $120.1 million the year before. 

On Friday, Jonathan received a letter from Kiwi Property. “To whom it may concern. The tenant,”  it started. “Dear Sir/Madam Rental Payments,” it continued, reminding Jonathan, in case he had forgotten, that his company wasn’t able to trade at the moment because of the Covid-19 alert level 4 and that this “will put financial strain on businesses”.

We wish to remind our tenants that their obligation to pay rent and other usual charges continues throughout this period.

There might, or might not, be support packages available from Government, the letter said. If there were, Jonathan should investigate them.

Because Kiwi Properties wasn't going to help.

“In the meantime, we wish to remind our tenants that their obligation to pay rent and other usual charges continues throughout this period unless the lease expressly states otherwise.

“Yours sincerely Kiwi Property Group Limited.”

In a separate email the company sent Jonathan an invoice for the rent.

What Kiwi Property is referring to when it talks about a lease “expressly stating otherwise”  is a critical ‘no access’ clause, which would, if their leases contained it, give Jonathan and his fellow tenants the right to not pay some or all their rent during the lockdown.

No access, less (or no) rent

‘No access’ clauses were commonly introduced into commercial lease agreements after the Christchurch earthquake, when businesses found themselves locked out of their red zoned buildings, but unable to get any rent or insurance relief because their particular building was undamaged.

That situation was seen as very unfair on tenants, and a group of property lawyers got together to devise a no access clause as a way to remedy that unfairness. 

(See Newsroom’s story Wondering if your business must pay rent? Look for clause 27.)

The trouble for Jonathan is the vast majority of Kiwi Property lease agreements don’t contain “no access” clauses. 

We don’t know exactly what that number is, but in an announcement to the NZ Stock Exchange in late March, Kiwi Property said even if every tenant which could exercise its right to suspend rental payments did so, “the company expects it would result in a drop in gross rental income of around $6 million, representing less than 3 percent of the prior year’s gross rental income.”

Which is great for the listed company’s shareholders, but not so great for Jonathan.

Sharing the pain

And it's not just Kiwi Property. Lawyers Newsroom contacted told us most of the biggest landlords use their own bespoke lease contracts and many don’t contain the clauses.

What is not clear is whether these landlords choose to help their tenants out anyway.

Everyone’s suffering, so why shouldn't these big corporate landlords take some of the pain?” Jonathan told Newsroom. 

“Their mentality seems to be ‘Let's get the most rent we can out of everybody? Not ‘How can we help?’ Not ‘What’s the morally right thing to do?’”

He says he contacted Kiwi Property directly last week to ask for some rent relief, and was initially told the company was considering the situation and needed time to make a decision.

But all that arrived was the letter telling him he was under an obligation to pay - and the invoice.

He’s worried if he doesn’t pay, Kiwi Property will simply take the money - several thousand dollars - out of his three-month bond.

He’s also worried about a clause in the contract that makes him liable for Kiwi Property’s legal costs if there is a dispute over rent.

“You must pay our reasonable legal and other costs arising out of this lease, including enforcing the terms of this lease and any other dealing arising out of this lease,” his contract says.

Kiwi Property owns $3.2 billion-worth of property and made $138.1 million profit in the 2018-2019 financial year.

Kiwi Property responds

A Kiwi Property spokesperson told Newsroom the company was in close contact with its tenants, “a number of whom have requested rent relief“.

“This is a challenging time and we know a number of retailers are under pressure because of the coronavirus pandemic,” the spokesperson said. 

“We’re working closely with many of these businesses on temporary measures to help them through this difficult period. Each of our retailers is different, so we think it’s important to adopt a case-by-case approach, but if they are having issues with their rent, we encourage them to contact their bank and us, as well as exploring the Government assistance programmes that have been put in place.”

Consult with your tenants

Property Council chief executive Leonie Freeman says it’s wrong to take a black and white approach. She means, but probably wouldn’t say, that it's not simply a case of big, mean landlords versus small struggling tenants.

Property owners aren’t just big companies, she says. Take an elderly couple with one row of shops who use the rent to pay their retirement village fees.

Or two big corporate retail tenants - H&M and Harvey Norman - which have announced unilaterally they won’t be paying rent in lockdown.

In a crisis you see the best and the worst of people.

“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,” Freeman says.

The Warehouse says it is negotiating rent reductions individually with its landlords. Not all of them are big corporate property owners. Photo: John Sefton.

She is urging landlords and tenants to work together.

“In a crisis you see the best and the worst of people. We all have to come out of this together or we are going to devastate our property sector. Tenants will lose their businesses and on the other side, landlords will be foreclosed on.

“We are saying ‘Consult with your tenants. Find a way through.”  

The good, the bad and the ugly 

Newsroom has also heard a range of stories - good and bad. 

Tenants of Auckland-based retail and office space owner Samson Corporation, say the company has been difficult to deal with. 

“There is no interest in tenants’ situations,” one told Newsroom. “Speaking to other tenants, it’s the same story, it’s a one-way street, the terms have been dictated. We make the sacrifice while we have no business operating and no income  - and they are prepared to help us make that sacrifice - as long as they recoup 100 percent of their rent at a future date.”

The Samson tenant is talking about deferred payments - where the landlord might give short term rent relief, but expects the tenant to pay it back later - possibly with interest.  

A Samson spokesperson said the company was negotiating with tenants regardless of whether their lease contains the ‘no access’ clause. 

Newsroom understands some Samson tenants have been offered rent discounts.

Other landlords have been more generous.

Several landlords Newsroom talked to have offered 100 percent rent rebates for April - longer if the lockdown continues. Simon Harding of Broadway Properties in Auckland told his tenants “as a landlord it is essential that tenants also survive and to this extent I believe some form of sharing of the pain is inevitable.”

This might be the single biggest chance we get to use our wealth and relative security to help others.

And landlord Ash Holwell of Spacelamp in Whangarei also waived the rent in April.

“Property owners have an opportunity to help New Zealanders survive the coming weeks,” he says.

“Property ownership has been richly rewarded in New Zealand in recent decades. In this pandemic, as with any other crisis, it is the wealthy who will be spared the most suffering. For many of us, this might be the single biggest chance we get to use our wealth and relative security to help others.

“This is the time for property owners to begin rental waivers, deferrals, freezes and other ways of easing the load.”

*Not his real name

Are you a tenant of a large corporate retail landlord - Kiwi Property, Westfield, Samson or others? Do you have a story to tell? Contact Newsroom.

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