The Government has finally released it's COVID-19 response in relation to Commercial tenancies. Rather than provide any financial assistance, the Government has created mandatory guidelines determining how much of the cost of this crisis will fall on the landlord and the tenant.
The mandatory code of conduct applies to business tenants with an annual turnover of up to $50 million who are suffering financial stress or hardship as a result of the COVID-19 pandemic, as defined by their eligibility for the JobKeeper programme (businesses who suffer at least a 30% reduction in turnover).
The code will be given effect through state and territory legislation and will apply from the 3rd of April 2020 for as long as the JobKeeper program remains operational (currently up to six months).
The following are some of the requirements of the code:
- Landlords must not terminate leases due to non-payment of rent during the COVID-19 pandemic period or reasonable subsequent recovery period.
- Tenants must remain committed to the terms of their lease subject to any amendments negotiated under the code.
- Landlords must offer tenants rent reductions in proportion to their loss of turnover, in the form or rent waivers and deferrals. eg if a tenant had a 60% loss of turnover, they would receive a guaranteed 60% reduction in rent immediately payable, in the form of waivers and deferrals. Rent deferrals remain payable by the tenant at a later date while waivers will never be able to be recovered by the landlord.
- Rental waivers must be no less than 50% of the total reduction in rent payable and should constitute a greater proportion of the total reduction in rent payable in cases where failure to do so would compromise the tenant's capacity to fulfill their ongoing lease obligations. eg if a tenant had a 60% loss of turnover, they would receive a minimum 30% rent waiver and 30% deferral of rent.
- Regard must be given to the Landlord's financial ability to provide a waiver greater than 50% of the total reduction
- Payment of rental deferrals by the tenant must be amortised over the balance of the lease term or at least 24 months, whichever is greater, unless otherwise agreed.
- Any reduction in statutory charges (eg land tax, council rates) or insurance will be passed on to the tenant in the appropriate proportion applicable under the lease.
- Landlords should where appropriate seek to waive recovery of any other expense payable by a tenant under lease terms during the period the tenant is not able to trade.
- Deferrals should not commence to be repaid until the earlier of the COVID-19 pandemic ending or the existing lease expiring, taking into account a reasonable subsequent recovery period.
- No fees, interest or other charges should be applied to rent waived or deferred.
- Landlords must not draw on a tenants security for non-payment of rent during the COVID-19 period.
- Landlords agree to a freeze on rent increases (except those based on turnover) for the duration of the COVID-19 pandemic period and a reasonable subsequent recovery period.
- Tenants are not required to meet terms in their lease requiring minimum trading hours during the COVID-19 pandemic.
A full copy of the code can be found here.
We await to see if the State government will provide any relief in regards to land tax or other rates.
Landlords may need to contact their bank to arrange a deferral of loan repayments to have sufficient cash flow to fund the reductions.