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“No access in emergency” clauses: interaction with right to issue PLA notice of cancellation

New Zealand’s COVID-19 alert level restrictions have placed under scrutiny "no access in emergency" provisions in leases. These provisions generally require an abatement of rent and outgoings when a tenant is unable to fully access the leased premises to carry out its business due to an emergency. In most cases, these clauses will apply during Covid-related lockdowns.  In this article we examine recent case law on their interaction with the statutory right to cancel for breach...

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“No access in emergency” clauses: interaction with right to issue PLA notice of cancellation

New Zealand’s COVID-19 alert level restrictions have placed under scrutiny "no access in emergency" provisions in leases. These provisions generally require an abatement of rent and outgoings when a tenant is unable to fully access the leased premises to carry out its business due to an emergency. In most cases, these clauses will apply during Covid-related lockdowns.  In this article we examine recent case law on their interaction with the statutory right to cancel for breach.


Under sections 245 and 246 of the Property Law Act 2007, a landlord can cancel a lease after serving notice on a tenant for non-payment of the rent or a breach of other obligations under a lease (such as the obligation to pay outgoings). The recent High Court case of SHK Trustee Company Limited v NZDMG Limited serves as a warning to landlords who intend to cancel a lease for non-payment of rent and outgoings during an emergency.
 
The landlord leased an office and a warehouse space to a kitchen manufacturer under two separate leases. The leases were on the widely-used Auckland District Law Society (ADLS) deed of lease, which includes a “no access in emergency” provision at clause 27.5. The tenant ceased rental payments from the first day of the first alert level 4 lockdown on 26 March 2020 and claimed a rent abatement under the “no access” clauses in the leases.
 
In August 2020, the landowner served a notice on the tenant informing the tenant that it was in default of its obligation to pay the rent and outgoings and requiring that the outstanding sums be paid within 30 working days. The notice made no allowance for the required abatement of rent and outgoings due to the “no access in emergency” clauses. After the tenant did not comply with the notice, the landlord cancelled the leases, took possession of the premises and later commenced summary judgment proceedings to recover the rent arrears.
 
The High Court declined the landlord’s application in respect of the amounts claimed as the landlord had failed to provide for an abatement of the rent in light of the ongoing pandemic.
 
As this was a summary judgment application for unpaid rent, the Court was not able to assess what the “fair proportion” abatement should have been (as this is “an evaluative exercise that cannot be done on a summary judgment application”) or determine whether the landlord’s breach notice was invalid. If the breach notice was invalid, the cancellation of the leases would have been unlawful. The Court stated that it was arguable that the breach notice was invalid on the basis that it did not make an allowance for the required abatement of rent and outgoings under clause 27.5 of the leases. The Court recommended that the landlord ought to have obtained an authoritative determination of the rent payable by suing the tenant and obtaining a formal judgment of the unpaid rent, or to have only served the breach notice for the undisputed rent arrears.

The case is an illustration of the risks involved in serving breach notices. Where claimed rent arrears relate to a period during which the rent abates under the terms of the lease or due to a statutory entitlement, landlords must draft breach notices with caution. Landlords might choose to rely on outstanding rent or outgoings payable in respect of non-abatement periods, agree the abated “fair proportion” with tenants or obtain judgment through legal proceedings as to the amount owing under the lease during the abatement period. Landlords also need to consider statutory interventions due to the COVID-19 pandemic (such as the COVID-19 Response (Management Measures) Legislation Bill) – relying on the words of the deed of lease alone may not be sufficient.

October 2021


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Additional COVID Exposure for Landlords and Tenants: The COVID-19 Response (Management Measures) Legislation Bill

The New Zealand Government has introduced the COVID-19 Response (Management Measures) Legislation Bill (Covid Bill), which passed its first reading on 29 September 2021 before going to the Finance and Expenditure Select Committee. Submissions to the Committee are due by 5 October 2021, with the Committee to report to the House on 14 October 2021. ..

News & Insights

Additional COVID Exposure for Landlords and Tenants: The COVID-19 Response (Management Measures) Legislation Bill

The New Zealand Government has introduced the COVID-19 Response (Management Measures) Legislation Bill (Covid Bill), which passed its first reading on 29 September 2021 before going to the Finance and Expenditure Select Committee. Submissions to the Committee are due by 5 October 2021, with the Committee to report to the House on 14 October 2021.


The Covid Bill amends several pieces of legislation. In this note, we focus only on the proposed amendments to the Property Law Act 2007 (PLA).

This is the second attempt at implying rent abatement provisions into commercial leases since Minister Little’s proposals in 2020, which did not make it beyond a Cabinet paper.

The Bill has received criticism both within and outside of Parliament for cutting across existing commercial leasing contracts, and the press release by the Government announcing the Covid Bill did not indicate the extent to which a lack of rent abatements is a problem in commercial leases.

The Property Council and a number of significant figures in the property industry have come out in opposition, noting the issues around defining the quantum of a rent abatement. Interestingly, the Property Council is seeking to gather information from its members about abatements or deferrals already agreed. The results may be a useful indicator as to whether there is a widespread problem necessitating Government intervention, or otherwise.

Key proposed changes to the PLA
 

  • From 28 September 2021 a “no access in an emergency clause” (implied clause) is implied into leases that do not include such a clause that covers an epidemic: Unamended ADLS leases from 2012 onwards already contain a similar clause and will not be affected by the proposed legislation, but other forms of leases such as Property Council leases and bespoke leases will need to be considered on a case by case basis.

  • The implied clause is triggered when a tenant “is unable to gain access to all or any part of the leased premises to conduct fully their operations from all or any part of the leased premises, because of reasons of health or safety related to the epidemic”:  What “fully” conduct means is to be determined and may cover situations where the tenant is operating in the premises sub-optimally, such as restrictions to capacity, customer access or social distancing requirements.

  • The implied clause provides that a fair proportion of rent and outgoings will abate under the lease during the period of the tenant’s inability to access all or part of the leased premises, backdated to 28 September 2021 (but possibly earlier), and ending when the inability ceases:  A “fair proportion” is not defined and nor is there any guidance on this. Much will depend on the circumstances, and negotiated outcomes will vary depending on the nature of the tenant’s business, the premises and the terms of the lease.  The provisions around when the abatement commences are unclear.  We expect these will be further developed in Select Committee.

  • The implied clause will not apply where the parties have already agreed contractually to vary the rent payable if access to the premises is restricted because of an epidemic (a “pre-commencement rent variation agreement”) and the agreement applies to the period covered by the implied clause: The implied clause might therefore apply for some of the period not covered by the pre-commencement rent variation agreement.

  • Until the landlord and tenant determine what a fair proportion is, a landlord cannot terminate a tenant’s lease for non-payment of rent and outgoings:  Section 246 of the PLA has not been amended so, a landlord may still cancel a lease for breach of other covenants of the lease.

  • Any dispute about what is a “fair proportion” is to be referred to arbitration under the Arbitration Act 1996. Arbitration could be expensive and lengthy: This does not preclude the parties from agreeing other methods of dispute resolution.

  • This rent abatement is specific to the COVID-19 epidemic:  It is expressly repealed when the Epidemic Preparedness (COVID-19) Notice 2020 expires or is revoked.

  • The implied covenant may be negatived, varied or extended by express agreement after 28 September 2021:  Relying on clauses in existing leases which exclude implied terms in the PLA will not be sufficient to exclude this implied covenant.

What can a landlord or tenant do?
Until the Covid Bill achieves Royal assent, landlords are not legally obliged to offer a rent or outgoings abatement where they do not have clause 27.5 of the ADLS lease (or a similar clause) in their leases. This is obviously a hard-nosed approach to be taken by landlords, but not an illegal one. Though the Covid Bill is only proposed legislation, tenants have been given a certain level of bargaining power to start discussions to achieve a rent and outgoings abatement and landlords can expect to see an increase in requests of this nature. Similar requests occurred shortly after Minister Little’s announcement in 2020.

Regardless of the passing of the Covid Bill, landlords and tenants are still free to come to agreement on a rent and outgoings abatement. Provided they agree from 28 September 2021, this will exclude the implied rent relief provisions in the Covid Bill entirely, perhaps in return for some other consideration. One particular incentive for the parties to agree an abatement is the lack of guidance over “fair proportion”. It is our experience that parties often pre-agree fixed discounts that will apply for Alert Levels 3 and 4.

We strongly recommend that landlords do not take any action to terminate leases for non-payment of rent and outgoings without seeking advice first. Particular caution should also be exercised as to whether a landlord calls on a bank guarantee or other security in respect of rent and outgoings, which may later be found to be properly subject to abatement from 28 September 2021. The Courts have regularly made decisions favourable to tenants, where landlords have acted aggressively in uncertain situations.

What leases are intended to be caught?
Leases which already contain a “no access in an emergency clause” are excluded from rent abatement provisions in the Bill.

The proposed wording of the “no access in an emergency” provision is close to, but not the same as, the wording used in clause 27.5 of the ADLS lease. However, by way of example, the equivalent clause 7.5(c) of the Property Council office lease is less clear in that:
 

  • the concept of “no access in an emergency” has slightly different triggers (such as the narrower concept of “inaccessibility”); and

  • there is also an additional requirement before a tenant may obtain rent relief, being that the landlord must be able to collect loss of rent insurance.

Is clause 7.5(c) of the Property Council office lease a “no access in an emergency clause” for the purposes of the Covid Bill? It is questionable and will likely be the subject of legal debate. However, the overall intention appears to be that, if there is a clause in a lease that operates akin to clause 27.5 of the ADLS lease, the implied clause proposed pursuant to the Covid Bill will not apply.

Watch this space
The Covid Bill is proceeding quickly through the Select Committee process and we can expect some strong submissions and public comments to be made before the Covid Bill is passed.

If you would like any further information about the effect of the PLA changes or how to deal with them, please contact Antonia Shanahan, Steve Woodfield, Mark Hay, Simon Mee or any of our experienced property lawyers.

October 2021


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The Construction Verdict - August 2021

Construction Verdict highlights some of the most important legal developments during the last few months relating to the building and construction sectors...

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The Construction Verdict - August 2021

Construction Verdict highlights some of the most important legal developments during the last few months relating to the building and construction sectors.


Construction Contracts (Retention Money) Amendment Bill

In early June Parliament introduced the Construction Contracts (Retention Money) Amendment Bill which, if passed, will further amend the retention regime under the Construction Contracts Act 2002 (CCA). The proposed changes address shortfalls in the current regime, such as situations where an insolvent contractor has co-mingled retention funds with its working capital, and its subcontractor is barred from recovering the full sum.

The headline changes are:

  • Retention money must be held on trust in a New Zealand bank account established and used solely for the purpose of holding retention money (or held in the form of complying instruments such as a bond or guarantee). Bank account names must include “retention money trust account” and identify for whom the money is held. The bank must also be notified that the account is holding retention money under the CCA;
  • Contractors must disclose information to subcontractors regarding retention monies when money is first retained, and then at least every three months thereafter; and
  • The introduction of offences for failing to comply with the new requirements. Contractor companies can be liable to fines for up to $200,000 whereas directors (or persons who act as a director) can be liable for up to $50,000.
The Bill is currently with the Select Committee, their report being due 11 November 2021.

New legislation addresses inefficiencies in modular consenting

The current consenting process as it relates to modular construction requires a separate consent for each component produced. If a component is produced in a different council region to where it is delivered for assembly, then consent is required from both councils.

The Building (Building Products and Methods, Modular Components, and Other Matters) Amendment Act 2021 (Act), aside from having a catchy name, recently received royal assent and seeks to address these issues.

The Act establishes a new scheme for certification, registration and monitoring of modular component manufacturers (MCMs). MCMs will be able to obtain certification to manufacture a modular component from a registered certification board. Certification then enables that MCM to produce the modular component without the need for inspection each time a component is produced.

Under the Act, building consents will only be required for the installation phase, with processing times reducing to 10 working days (down from 20 working days).

The Act is effectively a framework and MBIE is currently consulting with the industry regarding necessary regulations to support and implement the Act.  The Act and the supporting regulations will come into effect no later than 15 months from the date of royal assent of the Act (so September 2022).

The hope and expectation is that this removes a barrier preventing the uptake of modular construction in New Zealand and that housing supply can be speed up as a result.

Proposed regulation of the engineering profession

The Ministry of Business, Innovation and Employment (MBIE) recently opened consultation on options to increase regulation on engineers in light of reports following the CTV building collapse and contamination of Havelock North’s drinking water.

The broad concern is that membership of CPEng and Engineering New Zealand is currently voluntary and any engineer wanting to avoid competence checks or disciplinary processes can simply opt out from these private entities. This places the burden on consumers to determine engineers’ competence.

MBIE have developed three proposals:
  1. All persons who provide professional engineering services must be registered. This would ensure all professional engineers obtain a practicing certificate and are subject to a code of conduct, mandatory CPD, and a complaints and disciplinary process;
  2. The introduction of a licencing regime for high risk engineering disciplines. Discipline classes would be established based on the potential for significant harm resulting from subpar engineering work. MBIE recommend making it an offence to practice in a restricted field without a licence, which could be issued by examination, evaluation of work, interviews, and track records; and
  3. Establishment of a regulator to oversee the regime. This independent regulatory board would be accountable to the Minister for Building and Construction and monitored by MBIE. Funding for the regulator would come from registration and licencing fees as well as levies.
Submissions have now closed and a cabinet paper has been submitted to the Cabinet Economic Development Committee for discussion.

Case Law

Contract interpretation: Bathurst Resource Ltd v L&M Coal Holdings Ltd [2021] NZSC 85

The Supreme Court has unanimously confirmed that, in principle, both pre-contractual negotiations and subsequent conduct can be admissible evidence when interpreting a contract.

As a check on this, the Court clarified that relevance and probative value are yardsticks for the admissibility of such evidence, which must be examined in accordance with the Evidence Act 2006.

Primacy remains in the written words when interpreting a contract, however ancillary conduct may assist courts in determining a contract’s objective meaning to a reasonable person having all background knowledge available to the parties. For prior negotiations, the conduct must be mutual; one party’s subjective belief as to the meaning of the words which isn’t communicated to the other party is inadmissible. Conversely, subsequent conduct need not necessarily be mutual, however it must demonstrate evidence of the parties’ objective intention as to the meaning of the contract at execution.

Contract, set-off: Asphalt Supply Company Limited v Cole John Limited [2021] NZHC 1257

Cole John (Principal) engaged Complete Limited (Contractor) to undertake construction work on the Principal’s property. The Contractor subcontracted the asphalt works to Asphalt Supply (Subcontractor) who provided the Contractor with a written warranty in favour of the Principal upon completion.

The Contractor said that the asphalt work was defective and withheld payment to the Subcontractor totalling $80,040 (Balance). The Subcontractor sued the Principal for the Balance, the Contractor having gone into liquidation. The Principal counterclaimed for breach of warranty. 

The Subcontractor, acknowledging it had no contract with the Principal, discontinued its claim. The Principal’s counterclaim went to trial in the district court. One of the key issues was whether the Subcontractor could set off Balance against the Principal’s counterclaim for damages (under s 18(2) of the Contract and Commercial Law Act 2017 (CCLA)).

The District Court held that the Subcontractor was not entitled to set off the Balance against the Principal’s counterclaim for damages (on the basis that the Balance was due on completion and that the Subcontractor had not completed the works).

On appeal Campbell J allowed the Subcontractor to set-off the Balance for breach of warranty against the claim for damages, overturning the District Court Judge’s ruling that the Balance was only due on completion, and the Subcontractor had not completed the works. 

The basis for the decision was that s 18 (2) of CCLA enables a party in the Subcontractor’s position (i.e. conferring rights in respect of a contract to a third party) to set-off (amongst other defences) any claim it has against the party to the underlying contract against any claim brought by the third party beneficiary (i.e. the Principal). 

The High Court held that the normal measure of damages available to a Principal for incomplete or defective work under a construction contract is the cost of completing the work or remedying the defects, less any sum that would have been payable to the contractor had the work been properly carried out.

Accordingly, they allowed the Subcontractor to set off the Balance to reduce the damages award payable.

Please contact our Construction team for more information.

August 2021


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Electricity lines 1, trees 0

On seven occasions during an eight year period, pine trees growing in a commercial forest fell onto an electricity line running through the forest causing damage to the line. In a recent judgment, the Court of Appeal held that the owner of the trees was liable to the owner of the line for the damage caused...

Electricity lines 1, trees 0

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Electricity lines 1, trees 0

On seven occasions during an eight year period, pine trees growing in a commercial forest fell onto an electricity line running through the forest causing damage to the line. In a recent judgment, the Court of Appeal held that the owner of the trees was liable to the owner of the line for the damage caused.



The case confirms that landowners can be liable for damage caused by their trees despite the trees being outside the “growth limit zones” imposed by the Electricity (Hazards from Trees) Regulations 2003 and despite the owner of the electricity line not having a registered easement for the line.

The electricity line was constructed in the late 1960s or early 1970s by a predecessor electric power board to the current owner of the line, Unison Networks Limited. Section 22 of the Electricity Act 1992 permits Unison Networks to keep the line on the land, and section 23 allows Unison Networks to have access to the land to maintain the line. No registered easement is needed for the line.

The property was acquired by the current owner in the early 1990s and converted to forestry in 1994.

The Electricity (Hazards from Trees) Regulations 2003 sets growth limit zones measured out from electricity lines. The growth limit zone for the line here extended only for 2.5 metres. Under those regulations, line owners can require that tree owners cut or trim trees which extend into the growth limit zones. Here, however, the trees were located outside the growth limit zones, with damage to the line caused by trees falling over during or following adverse weather.

The Court of Appeal agreed with the earlier High Court judgment that the tree owner was liable to the line owner in “nuisance”. A nuisance is an ongoing or recurring activity or state of affairs that causes a substantial and unreasonable interference with the plaintiff’s land or the plaintiff’s use and enjoyment of that land.

Normally a nuisance occurs in the context of neighbouring properties; the defendant will cause something to emanate from the defendant’s land, like smoke or noise, which interferes with the plaintiff’s use of adjoining land. Here, the lines and trees were on the same land but both the High Court and Court of Appeal were comfortable that the tort of nuisance could apply in this situation. As noted by the Court of Appeal, the trees were, in effect, emanating from Nottingham Forest’s land and causing damage to Unison’s property.

The key factor here was the repetitive nature of tree falls. A succession of trees, which had grown to a height greater than their distance from the line, fell onto the line and caused damage. Given the inevitability of tree falls, the Court of Appeal had no doubt that it was unreasonable for Nottingham Forest to allow trees to grow to the height at which they would cause damage to the line if they fell. By creating this state of affairs, Nottingham Forest was strictly liable for any resulting damage, and could not avoid liability by showing that all reasonable precautions had been taken.

This was a novel case, although it pulled together strands of settled law, and could have widespread application especially to commercial forest owners. It clarifies that the Electricity (Hazards from Trees) Regulations 2003 do not oust common law liability for damage to electricity lines caused by trees and that, in circumstances involving a series of events, landowners could be strictly liable for that damage. As shown in this case, liability can exist where the trees are outside the “growth limit zone” but within falling distance of the line, where the trees are otherwise healthy and where the line is protected by a statutory right rather than a registered easement.

Julian Smith from Greenwood Roche advised Unison Networks on this claim, and has advised other electricity lines companies on tree management issues – amongst other things – for more than 20 years. We can also advise forestry companies on their obligations here and the impact on potential plantable areas.

June 2021


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Retentions Regime to be Strengthened

The Government recently proposed to introduce changes to the Construction Contracts Act (CCA) seeking to strengthen the retentions regime. The Construction Contracts (Retention Money) Amendment Bill (Bill) proposes a number of clarifications and requirements on the retention regime under the CCA.  We run through the main elements of the changes...

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Retentions Regime to be Strengthened

The Government recently proposed to introduce changes to the Construction Contracts Act (CCA) seeking to strengthen the retentions regime. The Construction Contracts (Retention Money) Amendment Bill (Bill) proposes a number of clarifications and requirements on the retention regime under the CCA.  We run through the main elements of the changes.


What are retentions?
 
Retentions secure performance obligations under a construction contract. A retention is used as a form of security for a party such as a Principal to ensure that the other party (Contractor) performs its obligations under the construction contract. Retentions are generally held until final completion or until the end of the defects liability period.
 
Issues have arisen where the party holding a retention (Party A) has become insolvent, and the party whose funds are being held (Party B) is left unable to access those funds due to the being comingled with the holding party’s other funds.
 
The Bill purports to deal with these types of scenarios.
 
Key Proposed Changes
 
If the Bill passes in its current form, it would mean any party holding a retention, Party A, must hold that retention:

  • as soon as possible, either:
    • in a separate bank account or accounts at a registered bank in New Zealand; or
    • in the form of a complying instrument (such as a guarantee or insurance policy) that requires an insurance company or a bank to pay to Party B an amount equal to the retention money if Party A does not pay the retention money to Party B when required by the construction contract;
  • on trust (thereby placing fiduciary obligations on Party A as a trustee);
  • with adequate recording measures; and
  • along with updates to Party B on the status of the retention every three months after first advised.
The aim of this change is to ring-fence the funds ultimately due to Party B after final completion so that they cannot be used by Party A for daily business.
 
The Bill reiterates that all common law rules and equity doctrines apply to the fiduciary relationship between the parties. Party A must act in the best interests of Party B, and Party A cannot use retention funds for any purpose other than to remedy any defects in Party B’s performance or payment obligations.
 
Importantly, as retentions will be subject to a trust, they cannot be used by a liquidator or receiver to meet Party A’s other debts, thereby protecting Party B from Party A’s creditors. If Party A becomes insolvent, the liquidator or receiver becomes the trustee of the retention. 
 
Party A must keep all of Party B’s retention money under a particular contract in the same account. While there can be other retention money in that account, the bank account cannot be used for any other purpose. If a single account is used for multiple parties’ retention funds, Party A must keep proper accounting records showing to which party and which contract each payment into or out of the account was made. If Party A becomes insolvent, the liquidator or receiver must continue to collect, manage, and disburse the retention as if they were Party A.
 
Consequences of non-compliance
 
There are severe consequences if the above process is not followed. Failure to comply is an offence, with a maximum penalty of up to $200,000 for the company and $50,000 for each director. It will be a defence to prove that: (a) Party A took all reasonable steps to ensure that it complied with its obligations, or (b) if the defendant is a director, they took all reasonable steps to ensure that Party A complied with its obligations.
 
What next?
 
If implemented, the legislation will provide construction companies with strict but clear guidelines on how they need to treat retentions while providing reassurance to contractors that the funds will not be misused – or at least that sanctions exist if they are. From there, it is up to the contracting parties to decide whether this is the best form of security and incentive for the applicable contract works, taking into account the cost of administration and risk.

June 2021


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Overseas Investment in New Zealand

Replacement of Temporary Emergency Notification Regime with new National Security and Public Order Regime On 25 May 2021 the Government announced the emergency notification regime (ENR) would end, at least until further notice. The ENR was part of the Government’s response to the Covid-19 pandemic and came into force in June 2020 under the Overseas Investment (Urgent Measures) Amendment Act 2020. The ENR was required to be reviewed every 90 days thereafter with Ministers required to assess whether the effects of the pandemic justified the ENR remaining in place. ..

Overseas Investment in New Zealand

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Overseas Investment in New Zealand

Replacement of Temporary Emergency Notification Regime with new National Security and Public Order Regime
On 25 May 2021 the Government announced the emergency notification regime (ENR) would end, at least until further notice. The ENR was part of the Government’s response to the Covid-19 pandemic and came into force in June 2020 under the Overseas Investment (Urgent Measures) Amendment Act 2020. The ENR was required to be reviewed every 90 days thereafter with Ministers required to assess whether the effects of the pandemic justified the ENR remaining in place. 


Associate Finance Minister David Parker said in a statement on 25 May 2021, that “our successful management of the health impacts of the pandemic and the recovery of the economy, with lower unemployment and stronger growth than forecast last year, mean we can remove the temporary protection.”

Transactions entered into from 7 June 2021 will not be subject to the ENR, although transactions entered into prior to this date will still be subject to the notification requirement. Further changes coming into force shortly under the Overseas Investment Amendment Act 2021 mean that the ENR may be reinstated where there is an emergency justifying such reinstatement.

National Security and Public Order Notification regime

The ENR will be replaced by a call-in power – known as the national security and public order notification regime (NSPO).  This regime will apply to transactions entered into on or after 7 June 2021. 

The NSPO regime will apply to investments in strategically important businesses (SIB) that would not ordinarily require consent under the Overseas Investment Act 2005 (Act). The NSPO regime will allow the Government to “call-in” certain transactions and consider whether such investments pose a risk to national security and public order, and gives the Government power to impose conditions on these investments (or if required, to block or unwind the transactions) when it is considered they give rise to significant national security or public order risks. It is intended that the call-in power will be used as a backstop power only and interventions will be rare and only used where necessary. 

Strategically Important Business

A SIB includes a business:

  • that researches, develops, produces or maintains military or dual-use technology;
  • that is a critical direct supplier to New Zealand’s intelligence and security agencies (refer to LINZ’s website for the list of published critical direct suppliers, but please note that some suppliers will be unpublished);
  • involved in electricity generation (with a total capacity exceeding 250 MW), distribution, metering or aggregation;
  • involved in drinking water, wastewater or stormwater infrastructure;
  • involved in telecommunications infrastructure or services;
  • that is a financial institution or involved with financial market infrastructure;
  • that is a media business with significant impact; or
  • that develops, produces, maintains or otherwise has access to sensitive information (being genetic, biometric, health or financial information) of certain agencies or relating to 30,000 or more individuals.
In most cases the threshold is $0 and 0% ownership for an investment in a SIB, however there are exceptions to this, being investments in media businesses with significant impact, where the threshold is more than a 25% ownership or control interest, and investments in a listed issuer, where the threshold is 10% or more.

Notification to the Overseas Investment Office

Mandatory Notification:

Where there is an overseas investment in a SIB involved in the research, development, production or maintenance military or dual-use technology, or is a critical direct supplier, notification of the transaction is mandatory and notification must be made to the Overseas Investment Office (Office) before a transaction is given effect to. 

Voluntary Notification:

For all other transactions not subject to mandatory notification, notification to the Office can be made on a voluntary basis, and this can be done either before or after the transaction is given effect to. Provided there are no national security and public order concerns, prior notification means investors have the benefit of knowing the transaction would not be called-in at a later date for review. Transactions that are not notified can be called-in for review at any time.

Review by the Overseas Investment Office:

The Office has indicated that it will complete an initial assessment within 15 working days of notification, and where it determines there may be a national security or public order risk, the transaction will be considered by the Minister of Finance, which may take up to 40 working days, (together with a further period of 30 working days, if required).

There is therefore clear benefit in a prior notification, even if voluntarily, though plainly there will be circumstances where a judgment call can be made as to whether the business really is of any strategic importance. We would tend to err on the side of caution here.

Following the initial assessment, and provided the transaction does not pose a risk to New Zealand’s national security or public order, a direction order will be issued. Each direction order will be issued with an automatic condition that the investor must not, in relation to the SIB, act or omit to act with a purpose or an intention of adversely affecting national security or public order. Further conditions may also be imposed by the Office.

If you would like further advice on these or changes, please contact any lawyer in our real estate or commercial teams.
 
June 2021


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Greenwood Roche becomes a Keystone Trust sponsor

Greenwood Roche has recently had the privilege of joining the Keystone Trust whanau as a proud sponsor...

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Greenwood Roche becomes a Keystone Trust sponsor

Greenwood Roche has recently had the privilege of joining the Keystone Trust whanau as a proud sponsor.


Keystone Trust’s fundamental goal is to support and enable students who have financial need or have been affected by adverse circumstances to take up tertiary studies in the property sector.

The Trust believe that this can only be achieved by working with others with the same value, vision and integrity – from students to sponsors, friends and supporters. 

Being able to contribute to the future capability and capacity of the property and construction sector through the Trust gives us the opportunity to ‘pay it forward’. Standing alongside a young person as they grow and develop into their potential is an enormously fulfilling experience and one we look forward to doing with Keystone.


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Infrastructure Funding and Financing Act 2020: A New Approach to Infrastructure Funding

The Government has recently developed a number of initiatives, including the Urban Development Act 2020 (UDA), the National Policy Statement on Urban Development (NPS-UD) and the COVID-19 Recovery (Fast-track Consenting) Act 2020, designed to support the functioning of urban environments and eliminate barriers to their creation throughout  New Zealand...

Infrastructure Funding and Financing Act 2020: A New Approach to Infrastructure Funding

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Infrastructure Funding and Financing Act 2020: A New Approach to Infrastructure Funding

The Government has recently developed a number of initiatives, including the Urban Development Act 2020 (UDA), the National Policy Statement on Urban Development (NPS-UD) and the COVID-19 Recovery (Fast-track Consenting) Act 2020, designed to support the functioning of urban environments and eliminate barriers to their creation throughout  New Zealand.


As part of this package of initiatives, the Infrastructure Funding and Financing Act 2020 (“Act”) passed its final reading on 22 July 2020 and received royal assent on 6 August 2020. The Act looks to ensure that a lack of funding at local government level does not continue to constrain development. Using the Act, developers can now access a new funding structure that will allow them to raise the funds and finance necessary for large-scale projects themselves (rather than rely on local government), with repayments made by future owners through rates on the developed land.

As noted by Auckland Mayor Phil Goff, “Traditional approaches to infrastructure funding and financing are not working. Constraints on council debt levels means viable infrastructure projects are postponed for years, despite the pressing need for more housing in these high-growth areas.”

The new funding model provides an alternative funding mechanism in a bid to accelerate the development of housing in particular. The Act received cross party support and is designed to complement existing funding tools available to local government.

Milldale Model

The financing structure set out in the Act is modelled on the structure utilised in the Milldale development in North Auckland. For Milldale, a special purpose vehicle (SPV) was set up to oversee a residential development project. The SPV raised initial capital from investors, proposing to pay them back by an annual ‘infrastructure payment’ added to the rates bill. Payments will initially be made by the developer and, in time, by the section owners.

The infrastructure payment obligations are secured by an encumbrance on each title, meaning the obligation to meet the payment runs with the land and binds any subsequent owners. In the Milldale example the payments are $650 + 2.5% interest per annum for apartments and $1000 + 2.5% interest per annum for homes and will last for 30 years.

While the Milldale development is still in the construction phase it is already clear that the model has enabled acceleration of the project and therefore faster delivery of affordable housing in Auckland.

How will The Act Work?

The Act adopts a very similar model to the Milldale model, by allowing the use of multi-year levies in large scale development that place the cost of infrastructure on those who will benefit directly from it. Levies will be able to be proposed for the provision or improvement of the following:
 

  • new water services infrastructure;
  • transport infrastructure;
  • community infrastructure or community facilities; or
  • environmental resilience infrastructure.
The process for creating an SPV and initiating levies will broadly involve the following:
 
  • The making of a detailed levy proposal to the government;
  • The proposal must include, among other matters, details of the SPV proposed, the financing structure and who will be responsible for construction;
  • The Minister for Housing and Urban Development as “recommender” will consider the levy proposal with reference to a number of factors and in consultation with the relevant local authorities and make a report to the responsible Minister (a Minister to be confirmed by the Prime Minister);
  • The report will include an assessment of the proposal, a recommendation and endorsement from the relevant levy authority;
  • The Responsible Minister may then recommend the Governor-General accept the levy (but may not amend the terms of the proposal).
Once a levy order has been made, the SPV will borrow funds to finance the infrastructure and set an annual levy that will be collected by the relevant local authorities on behalf of the SPV to pay back the borrowing. Vesting agreements will ensure that the conditions of any transfer of ownership of the infrastructure are clear. An encumbrance will secure payment of the levy by all future owners of the properties to benefit.

Commentary

Support for the Act has been reasonably wide as it is generally agreed that addressing infrastructure funding issues will enable faster provision of housing in areas where demand has been eclipsing provision. All major parties supported the Act, which then Infrastructure New Zealand CEO Paul Blair commented would “enable a bolder, more streamlined way of delivering new infrastructure for the benefit all New Zealanders”.

The Act will work with the direction in the NPS-UD that local authorities must have particular regard to plan changes for “out of sequence” (ie not zoned) development in some circumstances. In most cases “out of sequence” development will not be serviced by infrastructure, nor will the funding for requisite infrastructure be part of the local authority’s short to medium term plans. The combination of the NPS-UD and the Act will provide an avenue for development to take place in response to the ever-rising demand for housing outside of that already anticipated.

As summarised by the Minister for Urban Development:

“We need to remove restrictive planning rules that stop our city expanding on the fringes, which creates an artificial scarcity of land and drives house prices up, and remove height and density rules that stop the city growing up, which, effectively, rations floor space. Local authorities need to plan ahead and make room for growth.………

This bill is part of our Government's policy response to that public policy failure. It's one step towards fixing a broken funding and financing system to support more and better urban development. It’s complemented by the National Policy Statement on Urban Development gazetted this week, joint spatial planning work with local government in our six high-growth metro cities, and the Hon David Parker's review of the Resource Management Act.”
 
For any questions on the Act please don’t hesitate to contact Lauren Semple or Francelle Lupis for further information on the Urban Development Act, the NPSUD and the COVID-19 (Fast-Track Consenting) Act 2020, see here.


September 2020


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The National Policy Statement for Freshwater Management 2020

The National Policy Statement for Freshwater Management 2020 (NPS-FM) has recently been gazetted and will come into force on 3 September 2020. The NPS-FM will replace the current National Policy Statement for Freshwater Management 2014 (amended 2017) and will make fundamental changes to the way freshwater is managed in Aotearoa...

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The National Policy Statement for Freshwater Management 2020

The National Policy Statement for Freshwater Management 2020 (NPS-FM) has recently been gazetted and will come into force on 3 September 2020. The NPS-FM will replace the current National Policy Statement for Freshwater Management 2014 (amended 2017) and will make fundamental changes to the way freshwater is managed in Aotearoa.


A prominent shift in the new NPS-FM is the incorporation of Te Mana o te Wai as the primary approach to managing freshwater. Te Mana o te Wai is defined in the NPS-FM as “a concept that refers to the fundamental importance of water and recognises that protecting the health of freshwater protects the health and well-being of the wider environment.  It protects the mauri of the wai.  Te Mana o te Wai is about restoring and preserving the balance between the water, the wider environment and the community”.  The NPS-FM identifies a hierarchy of obligations within Te Mana o te Wai that prioritises:
 

  • First, the health and wellbeing of water bodies and freshwater eco-systems.
  • Second, the health needs of people (such as drinking water).
  • Third, the ability of people and communities to provide for their social, economic and cultural wellbeing, now and in the future.
 The core principles of Te Mana o te Wai informing the NPS-FM and its implementation are:
 
  1. Mana whakahaere: the power, authority and obligation of tangata whenua to make decisions that maintain, protect and sustain the health and well-being of, and their relationship with, freshwater.
  2. Kaitiakitanga: the obligation of tangata whenua to preserve, restore and enhance, and sustainably use freshwater for the benefit of present and future generations.
  3. Manaakitanga: the process by which tangata whenua show respect, generosity, and care for freshwater and for others.
  4. Governance: the responsibility of those with authority for making decisions about freshwater to do so in a way that prioritises the health and well-being of freshwater now and into the future.
  5. Stewardship: the obligation of all New Zealanders to manage freshwater in a way that ensures it sustains present and future generations.
  6. Care and respect: the responsibility of all New Zealanders to care for freshwater in providing for the health of the nation.
The NPS-FM directs that freshwater is to be managed in a way that gives effect to the concept of Te Mana o te Wai – as articulated through the hierarchy and the principles.  The NPS-FM is also clear that regional councils must engage with communities and tangata whenua to determine how this concept applies to water bodies and freshwater ecosystems in the region, including through the development of the core “deliverables” under the NPS-FM including:
 
  • The development of long-term visions. Every council must include the long-term visions as objectives in regional policy statements. The long-term visions must be developed through engagement with the community and mana whenua about their long term wishes for the water bodies and freshwater ecosystems in the region.
  • Implementation of the national objectives framework. The national objectives framework is a process that requires regional councils to undertake a range of steps such as identifying freshwater management units and values, setting environmental outcomes and including them as objectives in regional plans, identifying and setting baseline states for attributes for each value, setting targets to support the achievement of environmental outcomes and prepare action plans to achieve those outcomes.
  • Developing objectives, policies, methods and criteria for any purpose relating to natural inland wetlands, rivers, fish passage, primary contact sites, and water allocation.
Alongside these requirements, the NPS-FM also prescribes a number of policies that must be included by all Regional Policy Statements and requires district and regional plans to align objectives with the environmental outcomes sought. Every local authority must give effect to the NPS-FM as soon as reasonably practicable.
 
This new NPS-FM is one of several streams of work in the freshwater space. The National Environmental Standards for Freshwater Management have also been introduced and will come into effect on the same day as the NPS-FM.  The standards will set requirements for carrying out activities that pose risks to the health of freshwater and freshwater ecosystems.
 
A full copy of the NPS-FM may be found on the Ministry for the Environment’s website here:
 


September 2020


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Major changes to residential tenancy legislation

The Residential Tenancies Amendment Bill 2020 was passed by Parliament on 5 August 2020, and is awaiting Royal Assent. The Bill makes a number of changes to the Residential Tenancies Act 1986, which will affect all residential landlords and tenants...

Major changes to residential tenancy legislation

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Major changes to residential tenancy legislation

Major changes to residential tenancy legislation

The Residential Tenancies Amendment Bill 2020 was passed by Parliament on 5 August 2020, and is awaiting Royal Assent. The Bill makes a number of changes to the Residential Tenancies Act 1986, which will affect all residential landlords and tenants.


Media have rightly focused on the reduced frequency of rental increases and changes to the termination of periodic tenancies, with these provisions being substantially amended for the first time in over 30 years.

Most residential property landlords will only be able to terminate a periodic tenancy:
 

  • by giving 63 days notice if the owner of the premises, or a member of the owner’s family (which includes extended family and whānau), requires the premises as their principal place of residence within 90 days after the termination date; or
  • by giving 90 days notice, but only for certain specified reasons. The list of reasons for terminating a tenancy is narrow, and the “no cause” ground has been removed.

Tenants will need to give at least 28 days’ notice to terminate a periodic tenancy – up from 21 days.

A late change was made to allow tenants to withdraw from a fixed-term or periodic tenancy on 2 days’ notice in circumstances of family violence. Any remaining tenants are then able to apply to the Tenancy Tribunal to be released from the tenancy on hardship grounds. A landlord who is physically assaulted by a tenant can terminate the tenancy by giving 14 days’ notice, but only if a charge is laid against the tenant for that assault.

Rent may not be increased within 12 months after the start date of the tenancy or 12 months after the last increase took effect. This applies even if the tenancy agreement (including for a fixed term tenancy) provides otherwise. As with the current Act, rent cannot exceed the market rent and cannot be charged more than 2 weeks in advance.

In addition:
 

  • landlords must allow tenants to undertake minor changes to the property (such as hanging pictures and redecorating), subject to certain conditions and provided that the changes do not require a building consent;
  • landlords must facilitate the installation of fibre connections to a property, although not if the installation will materially compromise the weathertightness, character or structural integrity of a building;
  • landlords must include the rent when advertising properties, and cannot hold auctions or solicit bids;
  • fixed-term tenancy agreements will automatically become periodic tenancies on expiry, unless both parties agree otherwise or in limited other situations;
  • to evict a tenant for anti-social behaviour (being harassment and activities causing non-minor alarm, distress or nuisance), the landlord will need to warn the tenant (in writing) at least 3 times in a 90 day period of that behaviour before seeking a Tenancy Tribunal order;
  • all tenancies (except social housing tenancies where the tenancy agreement prohibits assignment) are assignable with the prior written consent of the landlord, and that consent cannot be unreasonably withheld; and
  • financial penalties are increased, generally by 50% or more, but with significant additional penalties potentially imposed where a landlord has 6 or more tenancies.

The amendments also strengthen the Residential Tenancies (Healthy Homes Standards) Regulations 2019 (which set “healthy homes standards” for heating, insulation, ventilation, draughtiness, moisture ingress and drainage) by requiring that landlords retain information about compliance with the healthy home standards and provide that information to tenants on request.

The changes largely result from a public consultation process undertaken by the Ministry of Business, Innovation and Employment in 2018, and driven by the Government’s desire to make life better for tenants in light of home ownership being at a 60 year low and the number of rented properties exceeding 600,000. The changes therefore increase the rights of tenants, and reflect that tenants will often occupy rental accommodation for many years.

We advise a range of social housing and residential property investors on the acquisition, management and disposal of properties. If you would like further advice on the changes to the Residential Tenancies Act 1986, please contact our real estate and property team.

August 2020


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