Rental relief during Covid-19 outbreak
Article by Denise Gallagher
Recent events are putting considerable strain on corporate occupiers of leasehold premises.
In a recent press conference, the Prime Minister, Scott Morrison, said the idea behind Australia’s “hibernation strategy” was to allow us to “preserve as much of the foundations and pillars of the economy through this time” to enable us to “rebuild and regrow on the other side”. “That means keeping jobs, keeping businesses, keeping tenancies in place, keeping loans in place and credit lines open … so on the other side of this crisis, the economy is able to rebound again.” He said preserving commercial tenancies was an important part of the wider economic strategy, and that as a result, businesses suffering from the devastating Covid-19 pandemic will receive some relief in the form of a new code of conduct for commercial leases.
Code
That Code has now been agreed and the Government has released the Nation Cabinet Mandatory Code of Conduct – SME Commercial Leasing Principles During Covid-19.
This Code comes into effect is 3 April 2020 and will remain in place while the Commonwealth JobKeeper program remains operational.
The purpose of this Code is to encourage good faith relationships between landlords and tenants under retail, commercial and industrial leasing arrangements. It will assist landlords and tenants to come to some form of resolution whilst the Covid-19 pandemic continues to affect many tenancies.
The Code will apply to all tenants who have a turnover of less than $50 million and are eligible for the JobKeeper program.
Each lease needs to be looked at on a case-by-case basis and it is essential that landlords and tenants co-operate and come up with a fair resolution.
Principles
Some key arrangements that will emerge as a result of the Code are as follows:
- Landlords cannot terminate leases due to non-payment of rent
- Landlords must offer proportionate reductions in rent in the form of waivers and deferrals based on reduction in trade during the Covid-19 pandemic
- Payment of rental deferrals by the tenant must be amortised over the balance of the lease term
- Landlords must pass on any reductions in statutory charges (e.g. land tax, council rates)
- Landlords must share any other relief that they receive
- Landlords should seek to waive any other expenses
- Landlords cannot charge interest on arrears
- Tenants should be provided with an opportunity to extend the terms of leases to reflect any period of relief
- Landlords agree to put freezes on rent increases
- Tenants will not be given penalties for reductions in trading hours
Mediation
If agreements cannot be reached between tenants and landlords, the matter should be referred to the applicable state or territory retail/commercial leasing dispute resolution processes for mediation. It is stressed that landlords and tenants must not use mediation processes to prolong or frustrate the facilitation of amicable resolution outcomes.
For more details please see below a link to the national code which has been released.