Things are moving quickly; time appears to have been on fast forward over the past 6 or 7 weeks.
Granted, the early days of lockdown in Alert Level 4 might have gone extremely slowly for many, but it is worth taking stock that it was only on 21 March that we in New Zealand heard we were on Level 2 of a new Covid-19 Alert Level system.
Back then we weren't familiar with PPE as a roll-off your-tongue reference, and we as a general public had not yet met Dr Ashley Bloomfield.
Such a lot has happened; yet such a lot has not happened that should have happened by now, including the resolving of many emergency rent payment agreements.
The aim of this latest article is to provide some assistance, some background, some context and some signposts for those who might be struggling to get their commercial property matters sorted out in these times, and to urge the commercial property community to deal with the issues at hand and not allow them to linger any longer.
The previous two articles I have written in the Covid-19 era can be read here. They offered advice that we all needed to act as one, together working our way through some extremely difficult and previously unchartered waters. They emphasised how important it is to get early resolution on rent payment arrangements, and for commercial Landlords and Tenants to understand that this is not a time for point scoring; it is a time to genuinely work together - and quickly - to get through this. For everyone's sakes.
The past few weeks have tested the quality of the relationships between Landlords and Tenants, and continues to do so. That short time has also exposed those who cannot see the greater good, blinded by their own greed and short term commercial goals.
There are also some wonderful examples of great people and great relationships providing the basis for swift, workable solutions that genuinely share the pain and should ensure the continuation of those positive relationships.
So how have some arrived at an impasse, or are they just waiting for Government intervention?
What needs to be understood by those who are struggling to unlock their particular situations?
I cannot, nor can anyone, make excuses for the extreme cases of people who simply dig their heels in, not caring about others, but allow me to set out some signposts for the more reasonable amongst us.
Government Intervention
Many have called for measures to be introduced by the Government to effectively regulate what Landlords and Tenants should do to resolve issues relating to their leases, particularly Tenants' obligations in respect of rent.
Whilst I covered my opposition to such interference or regulation in my last article, I would like to mention three reasons why direct Government intervention is not going to happen. So don't wait for it.
Firstly, at a practical level - The Government is not going to interfere with existing commercial agreements. The reasons for not doing so have been variously reported. The reality is that no Government should, or will, jeopardise an existing commercial contract. Even in these extreme times.
The Government also somehow believes that 75% of the economy is back up and running. It is not. We do not have 75% of the pre-Covid-19 economic activity. However, believing that we do, this Government is not going to help a commercial community that - by extension - is in their eyes substantially back on its feet.
Still at the practical level; the past few weeks have served to highlight that there is next to no understanding of the workings of the commercial property market by Ministers, amongst others. They are all at sea when trying to work out why Tenants and Landlords alike are facing significant cashflow issues; even failing to acknowledge that Landlords may be facing hardship issues of their own, nor that many are actually granting generous relief to their Tenants.
Secondly, at an economic level - The numbers involved (the commercial rent roll, nationally) are simply out of reach of any subsidy, grant or loan scheme.
Thirdly, at the political level - This Government is not going to favour commercial Landlords over the welfare of employees in the businesses who are the Tenants. 'Businesses' are being too easily and unilaterally referred to when Ministers are asked about what assistance can be provided to resolve rent payment/relief/abatement matters. Landlords are also 'businesses', but this Government is not going to reflect that in any of its urgent policies or initiatives.
The Three Phases
What is becoming clearer by the day is that there are three distinct phases to this pandemic from a business perspective.
I continue to urge swift resolution to current disputes on rent payment, as we are already in the early stages of the second phase, after which disagreements will drag on in a quickly changing world where priorities will change. The arguments presented early on will become more mirky as new normals evolve.
The First Phase was the Alert Level 4 lockdown. Places of work were out of bounds, many businesses could not trade, some people worked from home. The first week of Level 4 was decidedly odd from a social perspective too, but we then settled down and understood what it meant. Many things in life had come to an abrupt halt.
The very short term impact on Tenants' businesses was clear, as it was for Landlords' businesses.
That was the time to resolve short term rent payment issues, so that short term cashflow problems could be alleviated, and a basis of understanding and review could be established.
The Second Phase is at Alert Levels 3 through to 1. The rules are less clear, more businesses are trading, albeit at vastly reduced capacity, many people are still working from home, but there are still limitations on people movements.
During this phase commercial Tenants are starting to understand just how different the future might look. Re-opening is not getting back to what was normal in mid March. It may never be for most, and that realisation is starting to hit home.
This means that whatever short term rent relief has been agreed, or not yet agreed, is but a tiny dot in a bigger picture that is becoming quite daunting for most commercial Tenants.
The Third Phase is the longest and is life after we leave the Alert Levels.
The reality of the economic effects of this pandemic is nowhere near being fully understood yet. It can't be, because we really don't know how long it will take for domestic and international travel to resume, what level of GDP shrinkages we will be looking at, what unemployment numbers we will be staring at.
Whilst we in New Zealand are languishing in almost no new cases of the virus, much of the rest of the world is experiencing continuing mayhem.
No-one yet knows what commercial life will look like, but you can be sure it will be vastly different from what we have known, and as much as I am an optimist about the future prosperity of New Zealand in the new world, I believe it is going to be a very long haul to get to the point where commercially and socially we are well balanced.
This will impact hugely on the commercial property market. I believe it is too early to say what, where and who will do well out of all of this. I really don't think that we have yet got a grasp on how long it is going to take to get a settled level and nature of economic activity established.
I believe that those who did not settle arguments over rent payments in Phase One and Two will look back and wish they had when viewed from Phase Three. So, I encourage everyone involved as - or on behalf of - Tenants and Landlords to resolve short term cashflow issues now by striking agreements that are workable for all and aimed at getting everyone through to Phase Three.
Signposts
To help maintain focus on what matters, and not be distracted by short term subsidies or loan bail outs, I suggest the following are kept at the forefront of people's minds when agreeing solutions for rent payments at this time.
Cashflow is the number one. Do what is necessary to maintain positive cashflow, and if necessary share the detail of your pain points with those with whom you are trying to agree your rent payment solutions.
Reflecting on how much has happened and changed over the past 6 - 7 weeks, don't try to look beyond the next 3 months for any sort of certainty. If you can strike agreements that take you that far out, great. Please make sure you maintain open dialogue on a regular basis, at a minimum every two weeks, and review your respective positions every month.
Maintain - and if you didn't have one before this, establish - a good open Landlord-Tenant relationship. Such relationships have thus far been key to agreeing a way forward.
Don't be greedy. You will look stupid.
Waivers and deferrals are different things. Please understand them and their implications properly.
Solutions
Every situation is different, and there is no one-size-fits-all solution to the rent payment issues facing commercial Landlords and Tenants.
Innovative solutions are being found and there are some common themes coming through, but no two cases are quite the same.
For this reason, amongst others, I am against the introduction of a Code of Conduct as has been introduced in Australia. I have said this before elsewhere. For proponents of it, be careful what you wish for. If a Code does not provide a workable solution for one or both the parties, it sends both parties straight into a corner. Don't wait for it. Don't rely on it.
Yes, guidelines are better than nothing at all, but imposing a formula via a mandatory Code is not the way to go.
Finally
The past month has seen some of the most interesting times in my 31 year commercial property career. I continue to learn, have met some great people, seen some incredibly damaged Tenant companies fighting for their survival, and seen some Landlords accept that now is the time to show compassion and work with their Tenants to ensure their mutual survival and future.
I continue to waive my fees for time spent helping Tenants and Landlords with Covid-19 related property issues at this time*. I see that only fair as they battle unexpected financial impacts. Feel free to call me, message me, refer me or simply take away some of what I have written here to add to your bank of opinions and pointers in these very strange times.
If I have provided just one snippet of information, context or background that has helped, encouraged or informed you in advancing your rent payment and cashflow issues, that can only be a good thing.
Be kind to one another. Look after each other. Be compassionate. They are not only the sayings of the day, they are the way we are all going to get through this, personally and commercially.
* Many people have contacted me for advice and input into their respective Landlord-Tenant matters since the start of Level 4. The only client paying a (reduced) fee is a company who has retained me to represent them across a number of leases on a wider project. All others are pro bono.
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