Rent relief in sight for commercial tenants

08 April, 2020 by Andy Young

The Federal Government has detailed a new range of relief measures in the form of rent deferrals and waivers, to help businesses impact by the coronavirus crisis.

The scheme, which would be implemented by states and territories through a mandatory Code of Conduct, will see landlords reduce leases in relation to the reduction in business experienced by their tenants.

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The Prime Minister said: “The purpose of the Code is to impose a set of good faith leasing principles for application to commercial tenancies (including retail, office and industrial) between owners/operators/other landlords and tenants, in circumstances where the tenant is a small-medium sized business (annual turnover of up to $50 million) and is an eligible business for the purpose of the Commonwealth Government’s JobKeeper programme.

“National Cabinet agreed that there would be a proportionality to rent reductions based on the tenant’s decline in turnover to ensure that the burden is shared between landlords and tenants. The Code provides a proportionate and measured burden share between the two parties while still allowing tenants and landlords to agree to tailored, bespoke and appropriate temporary arrangements that take account of their particular circumstances.

“National Cabinet again noted that it expects Australian and foreign banks along with other financial institutions operating in Australia, to support landlords and tenants with appropriate flexibility as they work to implement the mandatory Code.”

He added: “The code brings together a set of good-faith leasing principles. Landlords must not terminate the lease or draw on a tenant’s security. Likewise, tenants must honour the lease.

“The point here is simple – it’s the same request we made of landlords and tenants about 10 days or so ago when I stood up on this issue, and that is that they sit down and they work it out. This must be shared.”

Stephen Ferguson, CEO of the Australian Hotels Association told TheShout: “The announcement yesterday regarding commercial tenancies has been welcomed by the AHA.

“The scheme attempts to share some of the pain between landlord and tenants during a tough period for all.

“The Government has highlighted the important role of banks in this process. It is critical the banks also step up and support both landlords and tenants with appropriate flexibility in implementing the scheme.”

The rental waivers must account for at least 50 per cent of the reduction in business. In terms of deferrals, they must be covered over the balance of the lease term and for no less than 24 months.

So, if a lease term goes for three years, the cost of the rental deferral can be amortized over that three year period, after the end of the pandemic period. But if the lease only has another six months to run, the tenant would have a minimum of 24 months after the pandemic period in order to cover up on the deferrals of the rental payments.

Speaking about the scheme, Michael Rodrigues Chair of the Night Time Industries Association, told TheShout: “The announcement reflects that thousands of small operators need urgent rent relief to avoid joining the many other businesses who have gone bankrupt over the past few weeks. We welcome the government finally taking firm action to protect tenants who have little or no revenue coming in and therefore can’t pay their rent.

“Our members tell us that rent repayment is by far the biggest risk to their business in the next 12-24 months and that, whilst some landlords have been sympathetic, many more are making unrealistic demands. This announcement is a clear signal from the government that landlords need to play fair and treat their tenants responsibly during this crisis.

“Many commercial real estate businesses have enjoyed the upside of quality hospitality in their buildings in terms of rental yields, capital growth and corporate tenant satisfaction. There is mutual benefit in ensuring hospitality businesses are able to reopen when conditions permit. Who else is going to let the space? Zoom?”