In many New Zealand commercial leases, a market rent review can push a shop’s rent up but cannot bring it down. That one-way mechanism, known as a ratchet clause, is now a campaign issue. The Green Party has promised to change the law so that a market review can lower the rent as well as raise it, for new and existing leases held by businesses with turnover under NZ$30 million, RNZ reported when the party launched the policy on 20 September.
The same package would let councils auction leases on central city shops that have stood empty for more than a year, and would create a low-cost tribunal for commercial lease disputes. ACT leader David Seymour dismissed it as a “fourth form social studies assignment”, arguing that the ratchet clause exists because banks demand it. With the general election set for Saturday 7 November, according to the Ministry of Foreign Affairs and Trade, the argument lands on every small retailer, café and service business that rents its premises.
What a Ratchet Clause Does to a Small Tenant
A ratchet clause sits inside the rent review provisions of a lease and limits how far the rent can fall at a review, or whether it can fall at all, as the New Zealand law firm Carlile Dowling explains in its guide to the clauses. Without one, a market review can move the rent in either direction. With one, the rent can usually rise, but any fall is blocked or restricted.
The wording varies. A hard ratchet stops the rent falling below what the tenant already pays. A soft ratchet allows a fall, but only as far as a floor, often the rent at the start of the current term or of the original lease. Some leases use a collar instead, capping rises and falls within a band. The firm’s worked example shows why the choice matters: a shop leased at NZ$50,000 a year plus GST, reviewed after three years when the market rent has fallen to NZ$45,000, keeps paying NZ$50,000 under a hard ratchet.
That gap compounds across renewals, which is why ratchets are among the most financially significant terms a small tenant signs. For a business already squeezed on margin, paying above the market rate for years is a direct hit to cash flow that no amount of trading can recover.
What the Greens Are Proposing
Green Party co-leader Chlöe Swarbrick put the case bluntly. “On most main streets in New Zealand you can find empty shops next door to small businesses paying high rents that were set when the market was stronger,” she said in the party’s announcement. “Current commercial leasing rules let rents rise when the market goes up and hold them up when it goes down.”
The party says Property Council New Zealand’s own standard lease, released in 2025, keeps a hard ratchet for every rent review. Its fix has several parts. A market review could lower the rent as well as raise it. Any cap on how far rent could fall would have to match the cap on how far it could rise, so a 5 per cent limit on reductions would mean a 5 per cent limit on increases. The party also wants to ban rent-review triggers that only a landlord can use, 1News reported.
The third strand is a low-cost tribunal. Small businesses currently cannot take commercial lease disputes to either the Tenancy Tribunal or the Disputes Tribunal, the Greens say, which leaves a small firm without a low-cost forum in which to challenge a review. For rent-review disputes the proposed tribunal would use final-offer arbitration, in which each side submits a figure and the adjudicator chooses one of them.
Council Auctions for Shops Empty Over a Year
The most interventionist part of the plan targets long-term vacancies. Under the proposal, a council could serve notice on the owner of a commercial space in a central business district that had been empty for more than a year, giving the landlord eight weeks to find a tenant. If none appeared, the council could auction a lease. Landlords could appeal where they intended to redevelop the property or move in themselves.
Swarbrick argued that incentives can make it more profitable for some landlords to leave a space empty than to accept a lower rent. “There is no shortage of people with amazing small business ideas, creatives who want space to allow their ideas the opportunity to flourish,” she said. “But there also happens to be a lot of vacant commercial spaces. Something is not quite adding up here.”
The Greens have tied the policy to specific centres. In Christchurch, the party’s Christchurch Central candidate Kahu Carter said the city had “put an enormous amount into rebuilding our central city” and now needed rules that help local businesses fill its streets, Inside Retail New Zealand reported. Christchurch City Council has itself identified vacancy as an ongoing challenge for the central city.
How England’s Version Works
The Greens say their auction power is modelled on a scheme English councils have had since 2024. High street rental auctions came into force in England on 2 December 2024 under the Levelling-up and Regeneration Act 2023, letting councils let vacant high street and town centre premises without the consent of the owner or the lender, according to a briefing by the law firm Dentons.
The English rules show how much process sits behind the headline. A property must have been unoccupied for the whole of the previous year, or for 366 days in the previous two years, and the council must be satisfied that filling it would benefit the local economy, society or environment. The council serves an initial notice, and the landlord has eight weeks to let the premises before a final notice can follow. Landlords can appeal on seven grounds, including plans for substantial building work, and the auction itself runs for about 11 weeks, including a six-week marketing period. There is no prescribed minimum rent.
The scope is also wider than shops. In England, “high street use” covers offices, restaurants, cafés, bars, entertainment venues, community halls and some manufacturing as well as retail, though warehouses are excluded.
Why ACT Says the Ratchet Protects Lending
ACT rejects the premise. “There’s an empty shop, maybe the government could take over? They have no idea about the complex ecosystem of investors, builders, tenants, and developers that make up an urban landscape,” Seymour told RNZ. He said it was banks that required a ratchet clause, not landlords, and that most people “want banks to loan so people can build, so tenants can rent, so that shops can open”.
Seymour’s argument goes to how commercial property is financed. A lender advancing money against a building values the rental income it produces, and a clause that stops that income falling protects the security for the loan. Remove it, ACT argues, and lending becomes harder, which in turn means fewer new premises for small businesses to rent.
ACT has pitched its own small business offer at employment costs rather than rents. The package, announced by small business spokesperson Laura McClure on 15 September, would freeze the adult minimum wage for three years, introduce a training wage at 60 per cent of the adult minimum for workers under 20 in their first 12 months with an employer, and require personal grievance proceedings to be lodged within three months of a grievance being raised, according to the party’s release. It would also change the tax rules so businesses can deduct investment in software on a clearer basis.
Beyond the CBD, Where Many Small Firms Trade
The debate reaches well past city centres. Pacific Media Network reported that the argument raises questions for Pacific businesses and community organisations in suburban centres such as Ōtara in South Auckland, where finding affordable space is already a concern.
“Shop tenants pay commercial rent, council rates, and other expenses, which already places a heavy financial burden on them,” said Amit Narchal, chair of the Ōtara Business Association. Ōtara-Papatoetoe Local Board member Apulu Reece Autagavaia said affordable community facilities were often hard to find, and pointed to a five-year lease secured by the 360 Tautua Trust in Ōtāhuhu as the kind of arrangement that lets a trust “spend money on their elderly rather than rent”.
The trading backdrop is not easy. The ANZ Business Outlook survey for September found retailers reporting net positive activity early in the month but a negative reading from those who responded later, after oil prices surged, and retail employment intentions stood at a net negative 10.9 per cent, RNZ reported. For a tenant facing a review in that climate, the difference between a hard ratchet and a two-way review is real money.
What Small Business Tenants Should Check Before 7 November
None of this changes a lease today. The Greens’ plan is a campaign pledge that would need legislation after the election, and its fate depends on the shape of the next government. Enrolment closes at midnight on Sunday 25 October, according to the Ministry of Foreign Affairs and Trade.
What a tenant can do now is read the rent review clause closely. Carlile Dowling advises checking which ratchet option has been selected for each type of review, reading the underlying wording rather than just the tick-boxes, and modelling a downturn to see how the rent would move in dollar terms. Leaving boxes blank in some standard forms can still leave a soft ratchet in place, and a consumer price index review whose factor “must not be less than 1” works as a hard ratchet, because the rent can never fall under that formula.
Rent is only one line in a small firm’s overheads, and cash flow pressure often arrives from several directions at once. DailyBusiness.News recently reported how late payment doubled and small firms reached for credit cards, a reminder that the businesses most exposed to a rent they cannot renegotiate are often the ones with the least cash to absorb it.
Whichever way the vote goes, the ratchet clause has moved from the small print of commercial leases into the centre of an election campaign, and small business owners now have a practical reason to find out exactly what their own lease says.
About The Author
More Stories
Fewer Than 4% Opted Out of Ireland’s Auto-Enrolment Pension
Productivity Mega Deduction Halves Canada’s Tax on Investment
The Whyalla Steelworks Furnace Went Cold and Took 600 Jobs With It