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Mediation can ease commercial property problems
(7 Oct, 2020) Economic recovery from covid-19 will involve some painful adjustments in the commercial property sector. Quick dispute resolution processes can ease that pain for property owners and business tenants.
Lockdowns, sharp reductions in business activity, and fundamental changes in how people work and spend money – all put cashflow pressure on owners and tenants. The latter might be struggling to pay rent owed under current lease agreements because their income has fallen (or dried up). And property owners deprived of rental income, or left holding vacant building space, can still face big mortgage obligations.
Both parties stand to benefit – or at least, to be less badly off – through mutual accommodation. That means revisiting lease agreements with a cool, clear appreciation of economic realities, and of the options that are available to the tenant and the landlord in each situation given their specific interests.
There is no “one-size-fits-all” solution. But in every situation it does make sense for the parties to negotiate with a clear idea of their real interests – both shared and divergent – and with a willingness to get beyond immediate cashflow fears.
Of course the sector has seen many such accommodations since March. In a NZ Council of Retail Property survey of members, 75% reported offering their tenants some form of rent relief. This is discussed in a recently-disclosed Cabinet paper on landlord-tenant issues: Offers were made but only accepted by tenants in half the cases – and that points to the scale of those ongoing issues.
The Government sees commercial property adjustments as a big threat to the survival of thousands of businesses and hence, to NZ’s economic recovery.
In May, it amended the Property Law Act to lessen time pressures on struggling tenants and mortgaged property owners. And between 1 October and next March, there are taxpayer-subsidised dispute resolution services: Parties can either receive a mediator’s help to progress their negotiations or put themselves in the hands of an arbitrator.
The emphasis is on speed in getting to revised lease and rent arrangements that save businesses and support property owners. Mediation is surely the quickest and least costly route when direct exchanges between the parties aren’t working. A trained, impartial third party can calm emotions, help both frame up their options and guide the conversation – all in-confidence and with a minimum of fuss. Lawyers need only be involved when the revised agreement is being documented and signed.
One further thought: No-one should get hung up on this word “dispute”. It can mean simply a difference in perspectives and an inability to, as yet, agree on a way forward in the landlord-tenant relationship. Having differences, being “in dispute”, isn’t a bad thing – and using a low-cost mediation process (or “resolution service”) is definitely a good thing.
See earlier blogs under the Gallery tab above.