With New Zealand now in a shutdown for at least 4 weeks to get ahead of the COVID-19 outbreak, we take a look at what this means for the property and construction sectors.
What work can continue?
Essential services are exempt from the Level 4 restrictions. There has been some confusion on what services are considered ‘essential’. Government advice confirms that firms involved in the following building & construction activities can be considered essential businesses:
Any entity involved in building and construction related to essential services and critical infrastructure
Any entity involved in building and construction required immediately to maintain human health and safety at home or work
Any entity that performs or is involved in building and resource consenting necessary for the above purposes
Logic dictates that the above will apply to the whole supply chain, including consultants and building supplies. DIY outlets for use by the general public are not considered essential businesses.
In addition, any work on non-essential services that can be progressed by staff working remotely can continue. This might include management, administration, consultancy or project design tasks.
Tenants & rent relief
The emergency brake that’s been applied to our business activities will inevitably lead to financial stress for tenants. Some of the leading property companies have automatic rent relief built into their leases for situations like this. Colliers International advise that some standard form leases, such as the current (2012) ADLS lease, include ‘no access’ clauses relieving them of rent that may be triggered by the shutdown. Landlords and Tenants will need to seek legal advice on their particular lease.
Whatever the lease says on the subject, letting a tenant carry the full impact of COVID-19 may prove short sighted. Tenants forced into liquidation as a result of COVID-19 leave landlords with vacant buildings, no make good contributions and a short supply of new tenants. Working with tenants to share the load of this unprecedented situation is more likely to maintain an income stream from your asset beyond the short term.
Construction project delays
For most projects, the practical implications of COVID-19 will be reasonably apparent. The financial implications will depend on the precise wording of the building contract as even standard forms are often amended.
Our most common building contract, NZS 3910:2013, permits an extension of time for ‘circumstances not reasonably foreseeable at the time of tendering’, providing that these aren’t within the contractor’s control. This relieves the contractor from liability for liquidated damages but does not entitle them to additional time-related costs, thus sharing the risks between the two parties.
Clause 5.11.10 permits any additional costs incurred by the contractor as a result of regulations, statutes or bylaws being imposed post-tending to be treated as a variation. Such costs would need to be carefully quantified and the contractor has a duty to mitigate these costs as far as reasonably practical.
Engineers (to the contract) may instruct the contractor to suspend the works before doing so. Under NZS 3910:2013, suspension by the Engineer is treated as a variation and is likely to entitle the contractor to de-mobilisation, re-mobilisation and time-related costs.
If you’ve any questions or queries on how COVID-19 might affect your property or construction activities, drop us a line.