Tax issues that may arise on renegotiation of leases
Commercial landlords and tenants across New Zealand are currently negotiating changes to lease terms, including in relation to rents. While tax considerations are unlikely at the present time to be a priority, the outcome of these negotiations may have a tax timing impact and be either advantageous or disadvantageous for the landlord or tenant depending on the approach taken. To the greatest extent possible parties should therefore have a clear understanding of the taxation impact of any altered arrangements prior to them being finalised and formally agreed.
Whether tax timing issues arise will depend on if there are other terms of the lease that are being varied in addition to the rent, and the manner in which any relief is structured.
If the rent payable by a tenant is the only matter being negotiated and varied then the outcome is likely to be tax neutral for the landlord and tenant regardless of whether the landlord’s contribution is by way of a lump sum or credit, or a reduction in rent (even if reduced to nil).
By contrast however, if there are changes to any other lease terms in addition to the rent there may be tax consequences, particularly if those changes include an extension to the term of the lease.
If you are negotiating any rent reduction where other terms of the lease are also being amended, we strongly urge both parties to take tax advice.
As a full service commercial firm we have tax specialists who can efficiently review any relevant agreements, and/or liaise with your usual accountants in regard to these issues. Please contact Bruce Patterson or Jo Giboney in the first instance.
Disclaimer: The content of this article is general in nature and not intended as a substitute for specific professional advice on any matter and should not be relied upon for that purpose. While we make every effort to ensure the accuracy of the information contained in this article, this is a rapidly changing environment and the information will be subject to change.