State of National Emergency
- Declared on 25 March 2020 under the Civil Defence Emergency Management Act 2002, and extended to remain in place on rolling 7 day extensions, the current period due to expire on 21 April 2020.
- Grants civil defence emergency management workers rights to manage roads, traffic and public places, and provide first aid, shelter, food and accommodation.
(Legislation: Civil Defence Emergency Management Act 2002)
Health Act Orders
and Quarantine Requirements (travellers):
- All persons arriving in New Zealand by air must submit to certain medical examination and testing and be isolated or quarantined for 14 days in a designated facility. Persons in low risk facilities are permitted essential personal movement which includes limited recreation purposes and accessing emergency and medical services. Persons who test positive on arrival will be restricted to their room at the facility and food will be brought to them.
- Police have powers of enforcement.
(Order effective 9 April 2020, expires 22 April 2020 unless revoked or extended)
and Quarantine Requirements (persons in New Zealand):
- All persons in New Zealand must remain in their current place of residence except for permitted essential personal movement, which includes accessing essential businesses (such as supermarkets, petrol stations), providing essential businesses, limited recreation purposes, authorised travel, shared custody arrangements, and accessing emergency and medical services.
- All persons must maintain physical distancing except to the extent necessary to access or provide an essential business.
- Police have powers of enforcement.
(Order effective 6pm on 3 April 2020, expires 22 April 2020 unless revoked or extended, follows earlier order effective 11.59pm 25 March 2020)
- Closure of Premises and Non-Congregation:
- All premises except as listed in the appendix to the order are to close until further notice. Exempt premises are residential premises, parliament, courts, prisons, premises for the performance or delivery of essential businesses – those that are essential to the provision of the necessities of life and businesses that support them.
- No person may congregate in outdoor places of amusement or recreation of any kind or description, public or private, until further notice (congregate does not include people maintaining 2m physical distance).
- Police have powers of enforcement.
(Order effective 11.59pm on 25 March 2020, until further notice)
Level 3 Measures (NB: Level 3 is not yet effective)
- Restrictions on activities remain, including at workplaces and socially
- Stay at home, other than for essential personal movement, work and school
- Stay in extended bubble, now including caregivers or close family
- Social distancing of 2 metres still applies except for emergency and frontline public services
- 1 metre distancing permitted in controlled environments (which allow contact tracing)
- Essential travel only, but permitted between regions and locally for essential reasons including work
- Public venues remain closed, as do shopping centres, cinemas.
- Primary care facilities and pharmacies remain open
- Work from home required unless it is not possible
- Workplaces that are permitted to operate must do so safely, meeting appropriate public health requirements, and without customer contact
- Schools from early childhood through to and including year 10 will re-open but attendance is voluntary and home schooling measures will continue. Children encouraged to remain at home if caregiving is available
- Construction will be able to recommence subject to implementation of workplace requirements. See Construction Accord (below) re protocols for the industry to be applied in Level 3.
Companies Act 1993 Proposed Changes
- gives relief from insolvency
duties under the Act for directors of companies facing liquidity issues, to
allow directors to make efforts to retain and revive a company rather than be
forced into an insolvency measure because of the risk of personal
exposure.. Other duties, such as to act
in good faith and not dishonestly incur debts, will remain. The change will allow directors to keep
trading and take on new obligations without breaching duties if:
- the directors consider, in good faith, that the inability to meet debts within the next 6 months is a result of Covid-19;
- the company was able to pay its debts as they fell due on 31 December 2019;
- the directors consider, in good faith, that it is more likely than not that the company will be able to pay its debts as they fall due within 18 months.
- gives relief from insolvency duties under the Act for directors of companies facing liquidity issues, to allow directors to make efforts to retain and revive a company rather than be forced into an insolvency measure because of the risk of personal exposure.. Other duties, such as to act in good faith and not dishonestly incur debts, will remain. The change will allow directors to keep trading and take on new obligations without breaching duties if:
- “Safe harbour” scheme
debt hibernation “Covid-19 Business Standstill” or “CBS”
- allows directors to liaise with creditors with a proposal for hibernating debts, to allow directors to retain control of the company rather than passing control to an insolvency practitioner
- will provide certainty to existing and new creditors in respect of voidable transactions
- 50% of creditors must agree to the directors’ proposal for hibernating the business, with one month from the date of notification of the proposal to vote on it
- one month moratorium on enforcement of debts from the date the CBS proposal is notified
- six month moratorium on enforcement of debts if proposal is passed
- CBS will be binding on all creditors other than employees (subject to conditions within the proposal)
- if CBS is rejected, existing insolvency options are available (for eg voluntary administration)
- if the CBS is agreed, the business can continue to trade (subject to restrictions or conditions in the CBS)
- payments made at arm’s length and in good faith to third party creditors would be exempt from the voidable transactions regime, ie no ‘clawback’. This does not apply to related parties.
- the regime is available to all business entities (including partnerships, trusts etc) other than sole traders (the ability to distinguish business from personal debts is considered to be too difficult)
- no confirmation yet as to effect on termination rights for insolvency events in existing contracts
- Voidable transactions clawback period reduced from 2 years to 6 months
- Allowing the use of electronic signatures in security agreements containing powers of attorney. This is a temporary change only.
- Temporary extension of various statutory deadlines under the Act (in relation to meetings and reporting for companies and other entities, for example annual return filing)
- Temporary relief where an entity is unable to fulfil an obligation under its constitution
(Legislation still to be passed, but is proposed to be backdated to 3 April 2020).
- Depreciation – depreciation deductions at the rate of 2% for commercial and industrial buildings, to assist businesses with cash flow and encourage investment in property to assist in the economic recovery. This does not apply to residential buildings.
- Discretion to be given to IRD to temporarily change dates, timeframes and procedural requirements where businesses and individuals are affected by Covid-19. It is expected, for example, that interest on late tax payments may be waived where it can be shown that tax payment difficulties have occurred as a result of Covid 19.
- Other assistance available includes: application for early refunds on provisional tax, extension of filing dates, write-offs due to serious hardship.
- Tax Loss Carry-Back Scheme (temporary) – businesses expecting to make a loss in either the 2019/20 year or the 2020/21 year would be able to estimate the loss and use it to offset profits in the past year. In other words, they could carry the loss back one year, and means tax already paid for the year in profit could be refunded, and businesses could cash out some or all of their losses in 2019/20 or 2020/21.
- Tax Loss Carry-Back Scheme (permanent) – applying to 2021/22 and later income years also proposed (public consultation commences in second half of 2020).
- Relaxation of tax continuity rules, from current “51% change” rule to a “same or similar business” test, modelled on Australian tax rules. This will allow wider options for capital raising for businesses (public consultation commences in second half of 2020).
(Legislation: COVID-19 Response (Taxation and Social Assistance Urgent Measures) Act 2020, plus further legislation to be introduced)
- Temporary change to the Property Law Act 2007 (to be introduced) to extend default notice period for non-payment of rent from 10 working days to 30 working days.
- Temporary change to Property Law Act 2007 (to be introduced) to extend mortgagee default notice period from 20 working days to 40 working days.
- Legislative changes to be introduced on 27 April, with the intention that it applies to lease cancellation notices and mortgagee sale notices issued from 10 days after 25 March 2020.
- Notices issued prior to the legislation being passed will be deemed to have specified the new minimum period.
- These changes apply only to commercial leases. See below for residential tenancy measures.
- Reversion to current timeframes under the Property Law Act 6 months from the end of the Epidemic Preparedness (Covid-19) Notice 2020.
- See below for further commentary on “no access” clauses and abatement of rent.
- Temporary rent freeze: no rent increases for any residential tenancy.
- Rent increase notices given prior to 26 March that had not come into effect, are no longer of any effect.
- Rent freeze continues for 6 months from 26 March 2020.
- Maximum fine for breaching the rent freeze – $6,500
- Tenancy termination restrictions: no tenancy can be terminated without agreement of all parties.
- All fixed term tenancies that expire will continue as a periodic tenancy except where specific and limited reasons apply.
- Tenancy termination restrictions apply for 3 months from 26 March 2020.
- Termination for non-payment of rent not available until rent is 60 days overdue. The Tenancy Tribunal will take into account fairness and the tenant’s efforts to pay when considering the termination order.
- Tenant may elect to remain in the tenancy even if it has given a notice to terminate prior to 26 March.
- Where an outgoing tenant elects to (or must, because of travel restrictions) remain in the tenancy, any incoming tenant has no right to occupy the premises.
- Maximum fine for breaching tenancy termination restrictions – $6,500
- Privacy: a tenant is not required to inform their landlord of their or any resident’s Covid-19 status. A tenancy cannot be terminated on the grounds that the tenant or a resident has tested positive for Covid 19.
(Legislation reference: COVID-19 Response (Urgent Management Measures) Legislation Act 2020)
- Throughout Alert Level 4 courts will continue to operate, with certain proceedings being prioritised (those affecting detained individuals, personal safety and wellbeing, or time critical proceedings), and proceedings outside those categories being heard as capacity permits.
- All new jury trials have been suspended from Monday 23 March up to 31 July 2020.
- Certain cases and evidence can still be heard by AVL or on paper.
- The ability to hear oral evidence is very limited.
- Registries of all courts remain open for filing and processing of documents by mail or email, but are working at reduced capacity to maintain safe working conditions.
- Delays should be expected but capacity is expected to improve over coming weeks.
- Remote technology will be implemented to recommence hearings for appropriate cases, including liquidation and bankruptcy lists.
- Remote technology is a temporary measure and delivery of justice in-person will be returned to when permitted.
(Source: Letter from Chief Justice of New Zealand to practitioners, 8 April 2020)
- Survey and title transactions submitted electronically are still being accepted by LINZ.
- Application for lapsing of caveats against dealings (under s143 of the Land Transfer Act 2017) are not being processed because of difficulty in complying with service and notice timeframes. Withdrawals of caveats by caveators are still being processed.
- Manual dealings are not being accepted.
Construction Sector Accord
- The Accord, a collaboration between private and public sector construction industry leaders, is advising the Government on how the industry can be maintained during and after the Covid 19 virus.
- A Response Plan has been developed for the sector focusing on maintaining potential projects during the lockdown, implementing measures to expedite recommencement or commencement after the lockdown, health and safety guidelines for the post virus environment, and financial support for the industry during and after lockdown.
- In collaboration with Property Council NZ the Accord is developing a set of protocols for use by construction businesses to operate safely (physical distancing, hygiene, contact tracing). It is intended these will be released prior to the move to Alert Level 3.
Employment & Wage Subsidy Scheme
- Subsidy available to businesses which experience a 30% drop in turnover in any of the months of January to June 2020 (compared to the same period last year), and that decline is related to Covid-19. The business must have taken active steps to have mitigated the impact of Covid-19 on the business. Available to businesses that have been operating for less than a year that can show a 30% drop compared with a previous month.
- Set rate of $585 per full-time employee per week, taxable in the hands of the employee and subject to student loan, family support and other usual deductions (not subject to GST).
- Businesses receiving the subsidy must undertake best endeavours to pay employees 80% of previous income, and if that is not possible then the whole of the wage subsidy is to be paid to each employee (unless its usual wage is less than the amount of the subsidy).
- Business must also keep the employees in employment for the period of the subsidy (up to 12 weeks).
- The scheme is open to all employers, sole traders, self-employed people, registered charities and incorporated societies registered and operating in New Zealand.
- Applicants granted the subsidy will appear on a publicly searchable register.
- Privacy: employers must be careful to comply with privacy obligations in respect of employees, including in respect of the employees’ health information. For situations where there is a necessity to prevent or reduce the risk of a serious threat to the health and safety of others there are exceptions under the privacy legislation.
Business Finance Guarantee Scheme
- Government guarantee of 80% of a bank loan for approved borrowers (according to individual bank assessment criteria).
- Available for businesses with an annual turnover between $250,000 and $80 million.
- Maximum loan that can be guaranteed is $500,000, guarantee term maximum is 3 years.
- The purpose of the loan must be cashflow related, with certain excluded uses including capital projects.
Retail Bank Mortgage Holiday Scheme
- The Government has worked with retail banks to enable banks to offer deferment of repayments for residential mortgages for up to 6 months.
- Interest will still accrue, deferred interest will be added to the principal amount of the loan.
- Each bank has its own criteria for assessing suitability for each customer and for implementing the deferral.
- Certain provisions of the Credit Contracts and Consumer Finance Legislation are not applicable to credit contracts entered into to relieve hardship experienced as a result of Covid 19
(Legislation: Credit Contracts and Consumer Finance (Exemption for COVID-19) Amendment Regulations 2020)
Execution of Documents
- Simple contracts and deeds may be signed in ink and scanned. A counterparts clause should be inserted to allow for signatures on separate pieces of paper that will be considered a single document. In practice, electronic signatures such as scanned ink signatures, tick to accept, or typed names have been accepted forms of execution for certain types of documents. However, this essentially depends on what the party or parties expecting to rely on the document is willing to accept. Some may require original ink signed documents to follow scanned documents, or may require a more secured form of electronic signing (see digital signing below).
- Generally, electronic execution
of documents is allowed by the Contract and Commercial Law Act 2017 provided
- there must be an ability to link the e-signature to the signatory and no other person;
- the means of creating the e-signature was under the control of the signatory and no other person;
- any alteration of the e-signature made after the time of signing is detectable;
- if the parties are relying on the e-signature to provide assurance as to the integrity of the information in the document then any alteration of the document must be detectable after the time of signing.
This means, insertion of a ‘cut and paste’ of a scanned ink signature is not sufficient for the purposes of the Act and cannot be relied upon.
- Digital signatures, a form of electronic signature, provide a higher level of security and are able to provide confirmation that the copy of the contract is the correct copy. A digital signature is encrypted into a document meaning the document cannot be subsequently amended without it being easily apparent. This provides the necessary assurance for parties to be able to rely on the integrity of the document at the time of signing.
- During Covid-19 alert level 4, Courts may accept unsigned or noncompliant documents for filing in priority cases.
- Remote witnessing using audiovisual technology is possible for certain documents including Authority and Instruction forms (LINZ) and most deeds. The signing of a will may not be witnessed remotely. Affidavits, oaths and declarations may be able to be witnessed remotely by a lawyer provided the lawyer supplies a certificate supporting the attested document. Acceptance will depend on the authority to which the document is submitted. Keeping a video record of any remote witnessing is a recommend practice.
(Source: https://www.linz.govt.nz/regulatory/01247 and Contract and Commercial Law Act 2017)
Property Council NZ
- ‘No access’ clause in PCNZ 2013 Retail Lease: PCNZ continue to recommend tenants and landlords negotiate in good faith to determine what is a “fair proportion” of rent to abate (in circumstances where the clause applies), and (where there is no “no access clause”) to take a considered approach to payment of rent during lockdown based on the continued viability of both parties’ businesses (see more under “No access clauses in leases” commentary paper).
- PCNZ has
made a number of recommendations to Government including:
- Rent subsidy proposal
- Delaying of rates increases
- Some Councils have already agreed to zero rate increases (see: https://www.taxpayers.org.nz/rates_dashboard)
- Anecdotal evidence we have seen is that many landlords and tenants are settling, for the moment anyway, on the tenants paying 50% of the rent for April and between 50% and 100% of the outgoings.
- During Alert
Level 4 many settlements will be impacted:
- vendors and purchasers are not able to move in or out of homes, and the vendor therefore cannot give vacant possession
- documentation may not be able to be executed (though most seem to be able to navigate around this)
- some solicitors may not be able to access resources in order to settle
- furniture removal is not an essential service
- travel restrictions
- New Zealand Law Society has recommended reaching agreement to delay settlement until after Alert Level 4, with a recommendation to delay until 10 working days after returning to Alert Level 2. Most vendors are preferring settlement once we reach Alert Level 3, but given we will not know the detail of that until April 16, that discussion is ongoing with most affected parties.
- Parties may still want to settle, and where parties are ready willing and able, this can generally be accommodated
No Access Clauses in Leases
- ADLS lease 6th
edition – “fair proportion” under clause 27.5:
- No set formula for determining what is a fair proportion, it has not been interpreted by the courts as yet, and there is no firm view on what considerations are to be taken into account. The “fair proportion” will depend on individual circumstances of the particular tenant and landlord.
- Negotiation will be required to reach agreement on the “fair proportion”. This may change over time as the Alert Level changes.
- Specialist barristers have attempted to explain the expression, the latest being in a webinar given to the NZ legal profession on 15 April, but there is no firm view on what test the courts will apply if it comes before them.
Council NZ 2013 Retail Lease:
- “no access” clause applies only where the Landlord is able to claim loss of rents insurance. It is unlikely that the current pandemic in itself would be covered, meaning the Landlord is not obliged to apply the concession provision.
- Leases which do not contain a “no
- Negotiation between tenant and landlord is still encouraged, to ensure the viability of both businesses going forward.
- Options for
accommodating rent difficulties include:
- Rent reduction
- Rent deferment
- Deferral of rent review
- Extension of term in consideration of rent relief
- Where parties are unable to agree the dispute resolution clause in leases which contain a no access clause would apply, but in the absence of that legal advice would be needed. Parties are being encouraged to reach agreement in order to avoid costly, slow and unpredictable legal proceedings.
A separate commentary paper is being prepared on this topic, given its current relevance across all sectors.
- A contract is frustrated when it is incapable of being performed due to unforeseen events outside the parties’ control and for which they are not responsible, resulting in the contract obligations becoming fundamentally different to those originally contemplated or impossible to perform.
- When a contract is frustrated, it terminates automatically at the time of the frustrating event rather than at the election of either party. The parties are excused from future performance.
- Frustration is separate to a force majeure clause, which might terminate contractual obligations or put them on hold. A force majeure clause should be examined carefully to determine whether it is triggered by Covid-19 restrictions. Applicability will depend on the exact wording of the clause. Frustration is a different concept that might be raised by a party if there is no force majeure clause or a force majeure clause is not triggered.
- The threshold for frustration is high, particularly in a leasing context. To date there have been no successful commercial lease frustration claims in New Zealand, though the courts have accepted that a lease could be frustrated in principle.
- Courts will consider a wide variety of factors when assessing whether a contract has been frustrated. The introduction of a government directive or change of law that means performance under a contract is illegal may lead to a finding of frustration, dependent always on the particular circumstances of the contract.
- Temporary impossibility of performance will not frustrate a contract, and therefore the length of remaining term of a contract and the length of time that Covid-19 restrictions render performance impossible or fundamentally different under that contract will be key when considering the likelihood of frustration applying.
- A change in circumstances that results in performance of a contract becoming more expensive or onerous is not enough to establish frustration.
- There is no scope for partial frustration- it is all or nothing. Partial impossibility of performance can only lead to frustration where the main purpose of the contract is defeated.
- A contract cannot be frustrated if the frustrating event is accounted for in the contract terms. For example, the presence of a ‘no access’ clause in a lease that applies during Covid-19 restrictions likely means that the lease cannot be frustrated if the premises cannot be accessed.
- Parties should be cautious when refusing to perform obligations under a contract because that carries the risk that the other party alleges breach of contract and claims damages.
- On balance we consider it is unlikely that frustration will apply unless the lock-down period extends for some time or the period of lockdown is substantial in relation to the time for performance of the contract.
Legislation, policy and information relating to Covid-19 changes rapidly and often. The information provided in this update is current only as at the time of issue of this update. The information provided in this update is intended as a quick reference guide to various sources of information only and cannot be relied on as legal advice of any sort.