On April 7, 2020, the Prime Minister announced the passing of a Mandatory Code of Conduct for Landlords to assist small and medium businesses and not for profit tenants.
The background of the Code is to pass through mandatory laws and guidelines following the announcement last week from the Prime Minister to outlaw evictions up to the end of September 2020, depending on the deepening financial and economic issues that arise from Coronavirus.
At a high level, there are a number of points to be considered:
- To be caught by the rules, the tenants must be eligible for the JobKeeper Allowance. The JobKeeper Allowance is only available for businesses which have had a fall in their turnover of more than 30%, and have an annual turnover of under $50,000,000. JobKeeper newsletter here;
- Landlords must offer tenants proportionate reductions in rent payable in the form of waivers and deferrals, of up to 100% of the ordinary amount payable;
- Rental waivers (that is non-recoverable) must constitute no less than 50% of the total reduction in rent payable. This means that Landlords need to be prepared to forgo 50% of the rent for the period of the COVID-19 pandemic (to 30 September 2020);
- Payment of the rental deferral component by the tenant must be amortised over the balance of the Lease term, and a minimum of 24 months, which may mean that Leases with under 24 months remaining need to be extended;
- If the Landlord is successful in obtaining reductions in outgoings, such as Council Rates, Land Tax and insurance they are to be passed on to the tenant;
- A Landlord should seek to share any benefit it receives due to deferral of loan payments provided by a financial institution with the tenant, in a proportionate manner;
- Landlords should waive recovery of any outgoings payable during a period that the tenant is unable to trade;
- Landlords must not draw on a tenant’s security for the non-payment of rent during the period of COVID19 pandemic, and/or a reasonable subsequent recovery period;
- The tenant should be provided with an opportunity to extend its Lease for the rent waiver and deferral period; and
- Landlords agree to a freeze on rent increases (except for retail leases based on turnover rent) for the duration of the COVID-19 pandemic.
These rules place a significant burden on Landlords and must be dealt with carefully, and in a manner which does not affect the financial viability of the Landlord.
For a number of our clients who do not have any loans against their commercial property, this has already created an issue, because they do rely on the rents to pay their day to day living expenses.
Here are some things to consider for your position as a commercial landlord:
- Contact your tenant and seek information, including any details and data to evidence that they are a qualifying business pursuant to the COVID-19 pandemic, and are in fact in Financial Stress or Hardship as defined by the Code of Conduct;
- Review your Lease to determine:
- What are the current rent and outgoings being charged per month (You need to pass on at least 50% of this per month);
- How long do you have left on the Lease?
- Are there any options to extend?
- What is the clause in the Lease relating to recoverable outgoings?
- How much security deposit, bond or guarantee do you have from your tenant?
- Review your own financial position, which includes:
- Do you have loans against the property?
- Are you eligible for JobSeeker or JobKeeper Allowances to supplement your income?
- Can you seek a reduction in rates, taxes and other variable outgoings or variable rental items?
- What is the minimum that you require to be able to pay your day to day expenses?
- As a worse case, do you have access to any superannuation?
- See this link for more information.
- Document all changes made to the Lease, as this will not only protect you in the event that there is an issue with the Code of Conduct, but it is always best to have things in writing.
We are waiting for more detail to be provided on whether the Government (Federally or by State) are going to provide a Landlord Compensation Scheme to assist Landlords who are small Landlords and do not qualify for the JobKeeper or JobSeeker allowances.
Here is the full media release from the Prime Minister:
Click here for the full Code of Conduct:
For more information please refer to these links to recent Newsletters:
We are keeping clients informed with new and updated information as it comes to hand, so please check the News on our website on a regular basis.