Commercial rent fee relief
The parliament met yesterday and passed legislation which enables the Treasurer to make rules to implement the JobKeeper Scheme. Unfortunately, the rules have not yet been published, and there are no new details to clarify certain parts of the scheme which are still uncertain so we will send an update about that next week when more is known. However, what is clear is that most businesses entitled to JobKeeper payments will also be entitled to rent relief on their business premises. Please find below our summary of the rental measures announced so far.
Commercial rent relief measures
Due to the severe effect on revenues of many businesses, the federal parliament has created a code, which will form the basis for state and territory parliaments to pass laws in relation to commercial rent relief (retail, office and industrial rents). Each state will be slightly different but is expected to adhere to basic national principles. Landlords are expected to be legally required to approach their tenants to negotiate. Whether you are a landlord or tenant, these measures may have very large financial impacts.
- Tenant businesses with a turnover of $50 million or less and who have been impacted by COVID-19
- Those businesses eligible for JobKeeper payments are automatically considered impacted
Cash flow Assistance for Tenants
- Landlords to agree to assist tenant cash flow with rent waivers and rent deferrals
- The assistance should be proportionate to the tenant’s decrease in revenue. For example, if a tenant has seen a 55% decrease in turnover, they should be given assistance with 55% of their rent.
- Of the assistance provided, at least 50% must be a waiver and the other 50% can be deferred payments. For example, where a tenant’s turnover has decreased by 55%, then they would need to have 27.5% of their rent waived, and 27.5% of their rent payment can be deferred. They would need to pay the other 45% on time.
- The waiver should be more than 50% of the total assistance where failure to do so would compromise the tenant’s capacity to fulfil their obligations under the lease.
- The deferred rent should be spread out over the remaining term of the lease or 24 months (whichever is greater).
- The deferred rent payments are not to commence until the pandemic has ended or the lease expires
- Any outgoings savings for landlords need to be passed on to the tenant where the tenant is responsible for those outgoings (e.g. land tax, or rates)
- The landlord must consider waiving recovery of outgoings
Other Adjustments to Normal Arrangements
- Landlords must not terminate the lease due to non-payment of rent during the pandemic
- Tenants must be committed to the terms of the lease subject to the amendments as per the code
- Landlords must not draw on Bank Guarantees, bonds or personal guarantees during the period of the pandemic or a reasonable recovery period after
- No fees, interest or penalties are to be charged by landlords for waivers or deferrals of rent
- Landlords to agree to freeze rental increases during the pandemic period
The code recognises that each commercial tenancy is unique and encourages landlords and tenants to negotiate in good faith to come to a reasonable arrangement in all of the circumstances. Failure to reach an agreement would require compulsory mediation at a state-based commercial lease dispute service. This is a very substantial release which may provide relief for tenants, and may require landlords to approach their financiers to seek alternative payment arrangements. Whilst it will be difficult to agree to anything between lessor and tenant until legislation exists, knowing the framework should allow crucial cash flow planning to be done.