By Brad Skinner
Landlords across the country are receiving requests for rent relief from tenants whose businesses have been impacted by the Coronavirus.
In a lot of cases, the impact is clear. Hotels, beauticians, massage therapists, restaurants and a host of other businesses can no longer operate under mandatory shutdown regulations.
In other cases, impacts are not as obvious. Partial shutdown of office premises with workers working remotely from home, food outlets continuing to trade by takeaway or home delivery are impacted by the virus but continuing to survive and in some cases even prosper in the post Coronavirus world.
Landlords have generally been sitting on their hands awaiting Government direction subsidies or intervention.
Confusing messages have been coming from property advocate groups warning landlords of the dangers of rushing into rental subsidy arrangements with tenants which may later disqualify the landlord or tenant from Government subsidy arrangements.
The National Cabinet Mandatory Code of Conduct – What is it?
The Federal Government has sought to give landlords and tenants direction by releasing the National Cabinet Mandatory Code of Conduct for SME Commercial Leasing Principals During COVID-19.
The purpose of the Code is stated as being a code to impose a set of good faith leasing principals for application to commercial tenancies where the tenant is eligible for assistance under the JobKeeper program.
The Code will be enacted through relevant State and Territory legislation or regulations over the coming weeks and provides a framework for landlords and tenants to negotiate rent relief.
What does it mean for landlords and tenants?
Our commercial landlord clients are already engaging closely with their tenants on ways to support them through the crisis. There is no one size fits all approach however the Code of Conduct provides useful direction to landlords and tenants on renegotiating their leasing arrangements in good faith to assist the cashflow of tenants and landlords on a proportionate basis.
The key points to take away from the Code are:-
- Landlords must not terminate Leases for non-payment of rent during the COVID-19 pandemic period or a reasonable subsequent recovery period.
- Landlords must offer tenants reductions in rent payable in the form of waivers and deferrals up to 100%, on a case by case basis, proportionate to the reduction in the tenant’s trade during the COVID-19 pandemic period and a subsequent reasonable recovery period.
- Rental waivers (as opposed to deferrals) must constitute no less than 50% of the total reduction in rent and should make up a greater portion of the Landlord’s rental assistance package in situations where the tenant will be unable to fulfill their ongoing obligations under the Lease unless the rental is waived. Regard must also be had to the Landlord’s financial ability to provide such additional waivers.
- The code encourages arrangements such as a 100% rent reduction during the COVID-19 pandemic period and the recovery period being provided by way of a 50% waiver of rent and a 50% rent deferral amortised over the balance of the Lease term or a further extended lease term agreed between the parties.
Self Managed Super Funds
The Code also applies to self-managed super funds leasing premises to related parties. The ATO advises that they will not take action where a SMSF gives a related party tenant a temporary rent reduction or waiver during the COVID-19 pandemic period provided that the reduction is commensurate to the impact of COVID-19 on the tenant’s business.
How can we help?
Rental waivers and deferrals should be documented by the parties under a Deed of Amendment of Lease and a Form 13 – Amendment of Lease where the Lease is registered on title.
If you are a landlord or a tenant requiring assistance with renegotiating the terms of your lease or documenting arrangements that you have already agreed with your landlord or tenant we can help you with that process. Please feel free to call us to discuss how we can assist.