Commercial tenants thrown a lifeline

Hans Lovejoy

Owing to COVID-19, a new code between commercial tenants and their landlords has been announced by the NSW and federal government. The code will be retrospectively applied to April 3.

Additionally, the NSW government have announced a moratorium on forced evictions owing to rental arrears for those financially disadvantaged by COVID-19, and new requirements for landlords and tenants to enter into negotiations over rental payments in good faith. 

While the finer details and the legislation are yet to be finalised, the government’s initial rhetoric says that commercial landlords, ‘must negotiate rent relief agreements with tenants’, and termination of a lease for non-payment of rent will be banned. A ‘freeze in rent increases’ is also mandated.

Increased mediation and advisory services to commercial parties will be provided, and where leasing dispute resolution fails, processes for binding mediation will be provided by the ‘Small Business Commissioners/Champions/Ombudsmen where applicable’. 

According to the over-arching principles of the National Cabinet Code of Conduct, ‘The objective of the Code is to share, in a proportionate, measured manner, the financial risk and cashflow impact during the COVID-19 period, while seeking to appropriately balance the interests of tenants and landlords. 

‘The policy will apply to business tenants with a turnover of less than $50 million that experience a 30 per cent (or more) reduction in revenue as a result of the COVID-19 pandemic. This will include any business with annual turnover of less than $50 million who is eligible for the Commonwealth’s JobKeeper program.’

The government press release says, ‘Commercial landlords will be offered [a] land tax concession if they pass the savings on to tenants through a rent reduction.

Eligible landlords will be able to apply for a land tax concession of up to 25 per cent of their 2020 (calendar year) land tax liability on relevant properties.’

Proposed leasing principles

According to the proposed leasing principles, ‘Tenants must remain committed to the terms of their lease, subject to any amendments to their rental agreement negotiated under this Code.’

Conversely, ‘Landlords must offer tenants proportionate reductions in rent, payable in the form of waivers and deferrals… of up to 100 per cent of the amount ordinarily payable, on a case-by-case basis, based on the reduction in the tenant’s trade during the COVID-19 pandemic period and a subsequent reasonable recovery period. 

‘Rental waivers must constitute no less than 50 per cent of the total reduction in rent payable… over the COVID-19 pandemic period 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 fulfil their ongoing obligations under the lease agreement’. 

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