Recognising the financial hardship due to the mandatory closure of those providing non-essential services in light with the Covid-19 pandemic, the Australian government provided a range of rent relief measures. This includes temporary stoppage of eviction notices and a mandatory code of conduct for commercial tenants, especially for small and medium-sized enterprises.
“This preserves the lease, it preserves the relationship, it keeps the tenant in the property.”Prime Minister Scott Morrison
Rent relief for 6 months
Eviction notices to commercial and residential tenants will be put on hold for the next 6 months starting April. The legislation also provides that deferral of rent payments must be spread over the remaining time on a lease and for no less than 24 months. This means that if a tenant has six months remaining on a lease, the tenant will still have at least a year and a half to resume paying rent.
The government also rolled out a mandatory code of conduct to facilitate good faith leasing principles in commercial tenancies applicable to office, retail, and industrial leases, between owners, operators, other landlords, and tenants. This Code applies to tenants that are small businesses and medium businesses with a turnover of up to $50 million and are eligible for the JobKeeper Payment. The Code also applies to government-owned and leased properties.
Under the National Cabinet Mandatory Code of Conduct, a common set of 14 principles applies to SME commercial leasing. These include:
- The binding code will cover small businesses with less than $50 million turnovers, where turnover has fallen by more than 30%
- Landlords must not terminate leases for non-payment of rent during the COVID-19 pandemic (or reasonable recovery period)
- No rent rises during the period of the pandemic
- Tenants must stay committed to their lease terms (subject to amendments)
- Landlords must offer reductions in rent (as waivers or deferrals) based on the tenant’s reduction in trade during COVID-19
- Benefits that owners get for their properties (e.g. reduced charges, land tax, deferred loan payments) should be passed on to the tenant (in the appropriate proportion)
The government is expecting banks, both Australian and foreign, to support landlords and tenants with flexibility as they work to implement the mandatory Code. According to the Australian Institute of Company Directors, citing an announcement by the Australian Banking Association, about 170,000 business owners, including commercial landlords, have received a deferral by banks on their business loan repayments. More information about the Covid-19 bank relief can be read at ABA’s website
The Code and its regulations will be implemented and regulated by states and territories. To access this assistance in each state and territory, go to Business.gov.au’s website
Minimum Rent Waiver Not Enough
Insolvency advisors Pearce & Heers point out that “many businesses may not survive if they cannot negotiate more favourable rent waivers than the minimum proposed in the Code.” Even when a business will negotiate a rent reduction under the rent relief package, there will still be businesses who cannot survive this pandemic because they need more than the minimum requirements to continue to survive.
One of the provisions in the rent relief is for a business that has had to cease trading due to COVID-19 and currently has no revenue, as a minimum, the landlord must waive 50% of the rent and defer payment of the other 50%, which accrues during the period of no revenue. After trading resumes, rent relief arrangements continue during the recovery period.
Some commercial property landlords, like Bill Henderson, founder of Corporate House, Queensland’s largest provider of serviced offices, is “ropable about what he sees as the unfair nature of what has been announced.” The Australian Financial Review pointed out that the Covid-19 crisis has “created one of the biggest challenges to landlord-tenant relationships since bitter street battles with police that marked the evictions of 1930s.”
While commercial property landlords may feel like the rent relief favours one side of the lease relationship, there is the mandatory Code that also obligates tenants to stay committed to their leases and prohibit them from abruptly terminating it. The purpose, after all, of the rent relief and the mandatory Code, is for both parties to talk and discuss how they can both survive the pandemic with the least impact to their business.
If you want to know more about the other support services the Australian government rolled out for SMEs during this Covid-19 crisis, we rounded them up for you in this article.