Mortgage free holiday overview
During these unprecedented times with
COVID-19, the term mortgage free holiday has been heard more now than ever. As
many New Zealanders' incomes have been negatively affected, which can make it
difficult to meet mortgage payments (amongst other payments), a mortgage free
holiday may be an option worth considering.
mortgage free holiday has always been an option for mortgagors even before
COVID-19. Its purpose is to offer some reprieve during unexpected events that
come up through life such as a change in income, death of a loved one, an
injury etc. In the normal course, each bank has their own application process
and criteria that is required to be met to be eligible for a mortgage free
holiday. If you are approved in the normal course, a mortgage free holiday is
usually for 90 days in length. During COVID-19 the banks have worked with the
government to create a mortgage free holiday that is for a length of 6 months,
with the only criteria required to be met is that you have been affected
financially by COVID-19.
It is important to keep in mind when considering a mortgage free holiday that
the interest payable will still accrue on the loan amount. This simply means
that the principal payments are deferred for the length of the holiday, but
since interest is still accruing, your loan amount will increase through the
mortgage free holiday, which means that it will take longer to pay back your
There are potential alternatives to a mortgage free holiday such as:
1. Make interest only payments. This would mean that the principal amount
of your loan would remain the same but the interest would not accrue as you
would be making this payment.
2. Extend the term of your loan. This would likely make the loan payments less
than what you have been previously paying, but again this will potentially
mean that you will be paying the loan back over a longer amount of time.
3. Discuss lowering payments with your bank. Many banks will consider the
possibility of lowering your payments for a period of time.
Inside this edition
Mortgage free holiday overview
Access issues - commercial leases
Employment rights for ACC claims:
both sides of the coin
Overview of the redundancy process
Overview of Trusts Act 2019
Open space covenants
Residential tenancy requirements
It is worth remembering that banks must act in a responsible manner and treat
mortgagors fair and reasonably, which includes when mortgagors are
experiencing financial hardship. With that said, if you are experiencing
financial difficulty and making your mortgage payments has/will become
difficult, the first action you should take is to contact your bank and
discuss all your options in full.
In these times of hardship and uncertainty that have come with COVID-19, a
mortgage free holiday is a way to relieve some of the financial stress from
life at the moment. However, as illustrated in this article, it is important
to understand the repercussions of a mortgage free holiday in the long term.
tenants were forced to close down non-essential businesses during the
nationwide lockdown. As a result, many commercial tenants and landlords face
difficulties in meeting daily business expenses. There is a "no access in
emergency" clause within ADLS leases, which was included following the 2011
Christchurch earthquakes and the creation of the 'red zone' where people were
not allowed to enter and operate.
Although not a natural disaster type situation, the current pandemic has been
considered an emergency during which tenants are unable to fully conduct their
business because of reasons of safety of the public. The ADSL lease clause
provides for 'a fair proportion of the rent and outgoings' ceasing to be
payable for that period. The fairness should be to both the tenant and the
landlord. There is much discussion on what is 'fair' in the circumstances
where tenants cannot trade, as this is subjective. To determine what that
reduction should be, there should be some engagement between the parties,
hopefully to agree on what is fair.
While unable to trade, arguably tenants still obtain some benefit from the
lease continuing; being able to continue to store their equipment and to
resume trade without difficulty once they can re-access the premises for
trading. Similarly, because most leases are continuing, landlords do not have
the ability to otherwise make any use of the premises (as they remain for the
tenant's use), and under a pandemic, they are unable to make insurance claims
for the loss of rental.
The insurance position being circulated is that even where business
interruption/loss of rent insurance is in place, there will not be a claim
available under the insurance cover, as there are exclusions for pandemics.
The exclusions are to deal with the underlying idea that insurance companies
operate by diversifying their risk worldwide so that there are only portions
of insured ever claiming under policies; as they cannot fund claims across the
entire pool of insured parties at once. Because there is no insurance claim
available to landlords, and they will continue to face the costs of the
premises, including rates, insurance, interest payments etc.,
it will likely be viewed that it's not 'fair' to the landlord for no rent and
outgoings to be paid during the closedown, but rather that fair, would be for
the 'downside' to be shared.
some cases, a 50% reduction in rent is somewhat acceptable to parties (given
the situation), although some (but not many) landlords are offering to waive
rent completely. There are also some landlords who, while not reducing rental
further, are agreeing to different payment arrangements, such as it being
deferred until their tenant's business is operating again.
Landlords may have the option of changing any lending for the premises to
interest only, or even having a 'mortgage holiday'. Such measures should
assist them in dealing with any rent reduction during the period.
For those that are not on the recent version of the ADLS lease with the "no
access in emergency" clause, and no other right under the lease to a rent
abatement, landlords are encouraged to consider their tenant's financial
situation. Reaching an agreement such as a rent payment holiday, reduction in
rent or variation of the lease, is likely to be in both parties' interests.
The Government announced its intentions to introduce a Bill to assist tenants
with late rental payments for commercial tenancies, and landlords for meeting
mortgage payments - so watch this space.
If you are a landlord or tenant within the commercial realm (for the purposes
of this article), it is important you contact your bank and lawyer for further
assistance in respect of rental matters, advocating for you with the landlord,
or documenting any changes within a lease (where applicable). Whether formally
documented or not, it is important to ensure there is clear agreement between
the parties to preserve commercial relationships during this unprecedented
In 2020, it would be hard to come across
a New Zealand household who has not either had a member of the household claim
ACC for an injury or at least known someone that has had to. Statistics New
Zealand reports that in 2018 alone, there were just short of 240,000 work
place injury claims across the country. With so many people relying on ACC to
maintain a livelihood, what do employees and employers need to know about
their rights in the process?
If an employee is injured in their workplace and meets the ACC pre-requisites
to receive compensation for their wage/salary, under the Accident Compensation
Act 2001 ("the Act") the employer must account for the first week of the
employee's wage (of up to 80% of their normal weekly wage) if they are
incapacitated due to the workplace injury.
This provision further encompasses employees with multiple jobs, whereby if
the injury has incapacitated the employee, resulting in them losing the
opportunity to earn a wage in their other jobs also, the employer of the job
on which the employee was injured must also cover the wages for the employee's
other jobs for the first week of the employee's injury leave.
As an employer, if your employee obtains a workplace injury, you are entitled
to complete due diligence investigations to ensure their injury and leave is
justified. For example, you may pay for the employee to go to a medical or
health professional to be assessed and require a medical certificate is
provided that reiterates the state of the injury and
In recent years, many employers have tried to make employees take their
sick/holiday leave whilst on ACC. This cannot be enforced and is a breach of
the Act. However, if an employee cannot work because of an injury obtained
outside of work, under the Act, an employer can make the employee use any
unused sick leave in that first week of incapacity.
Whilst on leave for a workplace injury, the Act and the Human Rights Act 1993
provide protections for employees from being dismissed during their injury
leave. An employer is permitted to dismiss the employee only if through a
thorough process of medical examinations/evidence and professional advice it
is determined that the employee will not be able to return to the job or an
adapted version of the job at any point. The case of McKean v the Board of
Trustees of Wakaaranga School ( ERNZ 1) sets out a series of factors
which should be seriously considered and investigated prior to dismissal by an
employer on medical grounds. These factors, amongst others, include the length
of employment, type of employment, nature of the injury and probability of
In many cases, whereby the injury leave is more than a week, the employer and
employee can agree that the employer will top the employee's ACC compensation
wage up to 100% by using existing sick leave available to the employee. There
is no obligation on either party to do so however.
If you are an employer where a workplace injury has occurred, and you are
unclear on your obligations, it is advisable that you contact ACC and/or an
ACC legal professional as soon as possible.
Redundancy can be defined as a situation
where an employee loses their job because their position is no longer needed
or useful to the employer. As in all employment affairs, the employer must act
in good faith and follow a fair process during the redundancy process.
process of redundancy can be an emotional time and cause uncertainty for many
employees and this is one reason why the redundancy option, from an employer's
perspective, should be a last option. Redeployment should always be considered
in the first instance, where applicable.
To start the redundancy process, the following steps must be followed:
1. Employers are to document their proposal in writing. This document needs to
clearly explain the changes that will be made to the business, an outline of
how the employer will be making their decision, and timeframes for the
employer's decision making process.
2. The employer then gives this written proposal to all employees in a similar
category of employment and is required to allow employees the ability to meet
with the employer to discuss further and to invite the employees to provide
3. The employer then gathers the feedback and considers all responses
4. After considering all the
feedback, the employer will confirm the new structure of the business. This
should be given to all employees in writing followed by a meeting with the
The employer is required to
advise all employees of their decisions. At this point, the employer would
give the employees their notice, in accordance with their Individual
Employment Agreement ("IEA"), that his/her position is no longer required. If
there is no IEA in place, a reasonable notice period must be given. This can
be decided based on the employee's length of service, the reason for the
redundancy, the industry norms and/or the employee's ability to find other
employment. The employer will have to choose whether to pay the employee for
their notice period or have the employee work out their notice period. If an
employee resigns during this notice period, the employer is not required to
pay for the balance of the notice period owing.
5. The employer will then make the changes to the business and support the
these changes. Support can include (but is not limited to) counselling
sessions, career advice, interview training, curriculum vitae support etc. As
the redundancy process can be a very stressful time for employees, it is
extremely important to make sure that all employees are receiving the support
Regarding final payments of employees that have been made redundant; this pay
must include any unused annual leave and wages, along with any other
entitlements up to the end of the notice period.
As the redundancy process is particular and must be followed accordingly, it
is very strongly recommended to involve human resource expertise if available
and/or a solicitor, to provide guidance in drafting necessary documents and on
how to conduct required meetings.
The Trusts Act 2019 was passed into law
in the same year and becomes operative on 30 January 2021. The time in between
remains critical as we all review the changes outlined. Existing best practice
around trust law, together with the thinking and documentation dovetailed into
the mix, is currently in the process of being updated around the country.
The last statutory rethink around trusts was in 1956. Both the use of trusts
and how they have been judicially interpreted, has been major and influential
during the period since then. What trusts have been used for, what they have
been used to protect and how they have affected the structure of corporate
life along with family succession planning - these are the contributions trust
law have made.
The new Act updates current thinking while requiring greater transparency with
beneficiaries regarding basic trust information, thereby satisfying current
decision making norms and trends. Whether trust busting had been necessary for
fairness and equity, or judicial and other forms of the decisions and
administration, our relationship with trusts has evolved markedly.
A trust has three main players: the Settlor, the Trustee and the Beneficiary -
and multiples of each of these. As each individual trust is reviewed in the
light of the new Act, important questions need to be asked again by and of
each 'player' to ascertain its relevance. A Settlor will ask whether the
underling objectives and reasons for setting up the trust remain relevant. The
Trustee will ask whether the true role is being carried out with independence
of thought along with rigour of decision making. Linked to that is whether the
liability associated with the future scrutiny of what the trust does, is worth
the risk of being a trustee at all. The Beneficiary muses on whether he or she
has the right to seek and receive information as the trust progresses on,
bearing in mind whether they are discretionary or final beneficiaries.
Many of the changes made are linked to either common law or statutory rights
in the trust law arena being challenged or examined. Accordingly, as at the
operative date of the Trust Act, each trust must be revisited to reach an
upgraded level of compliance and equity. Documentation must include reasons,
timely interventions to maintain asset values, and accurate directions to best
guide the assets entrusted to a trustee's care. Personal agendas, conflicts
and prejudices surrender to the common objects and objectives. Failure to do
that will embarrassingly come to light if there is a delving into the workings
of the trusts down the track.
A trust may no longer gather dust. All assets must be examined for relevancy
and value. These principles require at least an annual meeting followed by a
suitable vehicle and process for reporting to all interested parties. Without
a doubt a trust is driven by its trustees. Often a trustee could wear the hat
of a settlor and/or a beneficiary. There is a strong common law duty of care
which falls on to the trustee's shoulders. The key parameters are set out in
the updated Act.
Your professional advisors are critical to any overview you may now undertake.
Often their trustee companies may provide an independent decision making
avenue. It is worth a visit to explore with them how your trust can be
transparent and relevant with its operations in 2021, while carrying out in
good faith its intended purposes.
Open space covenants
Long before the current focus on climate change and other environmental issues
emerged, many indications were already pointing New Zealand in those
One of the key pieces of practical legislation was the Queen Elizabeth II
National Trust Act of 1977. Its main stated objective was to encourage and
promote the provision, protection and enhancement of open space for the
benefit and enjoyment of the people of New Zealand. The role of the Trust
evolved from there.
The open spaces that were to be protected, enabled the preservation of
threatened aspects of our country that the Trustees deemed worthy of a
lifeline. These included special historically significant spaces, animal
species, plant varieties; segments of bush, land and views -
all at risk.
Regional Representatives were the catalysts who sought out these spaces across
the country, often dovetailing in with voluntary environmental and
conservation management plans of thousands of New Zealand individuals and
entities, both rural and urban.
Open Space Covenants are completed with terms and conditions set out with both
the required consents and the definition surveys attached. The covenants,
which run with the land in question, are either in perpetuity or for specific
Your lawyer can assist with all aspects of the process, hand in hand with
those Regional Representatives of this superb Trust.
Residential tenancy requirements revisited
In response to the Covid crises, from 26 March 2020 the
Government announced a freeze to residential rent increases and greater
protections for tenants against having their tenancies terminated.
The rent freeze is initially for six months. Allied to that, landlords cannot
evict tenants over the three months from then, except in exceptional
circumstances. Tenants may exit tenancies in the usual manner and under the
existing timeframes. Extensions to these dates may be enforced by government
regulations at a later date.
Covid-19 aside, there have been changes to landlord/tenant law that you should
be aware of by now. The Tenancy Tribunal information updates the underlying
position together with amendments, while cross referencing to Healthy Home
Standards. Your legal advisor is also able to outline the rights that both
landlords and tenants have in the current environment.
Under the relevant legislation in place, more consideration and notice needs
to be provided when a tenancy is being terminated. In general, more health and
safety issues around insulation, smoke alarms and dry warm houses are being
required, and where premises are substandard, known as unlawful residential
tenancies, tenants are allowed to exit with only two days' notice.
In this complex area, advice is paramount for both sides of the tenancy
If you have any questions about the newsletter items,
please contact me, I am here to help.
Scannell & Co - 122
Queen Street East, Hastings
(06) 876 6699 or (021) 439 567 Fax: (06) 876 4114 Email:
information in this newsletter is to the best of the authors' knowledge true
and accurate. No
liability is assumed by the authors, or publishers, for any losses suffered
by any person relying directly or indirectly upon this newsletter. It
is recommended that clients should consult S J Scannell & Co before
acting upon this information.
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