Relief for businesses with commercial leasing arrangements
April 09, 2020
If your business rents your commercial premises and you have experienced a reduction in your turnover by 30 per cent (compared to the same period last year), you may be entitled to access measures to provide rental support and ban evictions which will be in place to address the financial impact of COVID-19.
All state and territory governments have agreed to legislate a mandatory code of conduct (Code of Conduct) guided by a set of principles to encourage tenants and landlords to agree on rent relief or other temporary amendments to a lease in response to the impacts of COVID-19. HIA will provide further details on each jurisdictions approach once they become available.
Who will the Code of Conduct apply to?
The Code provides a way for a business that is eligible for the JobKeeper Payment to access rental relief. This means that the Code will apply to tenancies where the business:
- has a turnover of less than $50 million; and
- can demonstrate a 30 per cent reduction in annual turnover compared to the same period last year.
What is in the Code of Conduct?
The Code sets out a number of principles to assist landlords and tenants share, in a proportionate, measured manner, the financial risk and cash flow impact that is occurring due to COVID-19 and also addresses a reasonable subsequent recovery period.
The overarching principles require that landlords and tenants work together, in good faith, to come to a mutually appropriate arrangement.
Amongst other things, the Code requires:
- A prohibition on lease terminations due to non-payment of rent during the COVID-19 pandemic period (or reasonable subsequent recovery period).
- That tenants must abide by the lease and any amendments or else lose any protections provided to you under the Code.
- That rent reductions must be offered in the form of waivers and deferrals of up to 100% of the amount of rent 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.
- That any reduction in statutory charges (e.g. land tax, council rates) or insurance be passed on to you in the appropriate proportion aligned with the proportionate reduction in rent.
- That any benefits from the deferral of loan payment be shared in a proportionate way between you and your landlord.
- The waiving of the payment of any other expense other outgoings. Landlords reserve the right to reduce services as required in such circumstances.
- That no fees, interest or other charges be applied with respect to rent waived or deferred.
- That landlords do not draw on a tenant’s security for the non-payment of rent (be this a cash bond, bank guarantee or personal guarantee) during the period of the COVID-19 pandemic and/or a reasonable subsequent recovery period.
- That lease extensions be offered for the period of the rent waiver and/or deferral period.
- A freeze on rent increases for the duration of the COVID-19 pandemic and a reasonable subsequent recovery period.
- No prohibitions or penalties be applied if you reduce opening hours or cease to trade due to the COVID-19 pandemic
For further information National Cabinet commercial leasing principles.
What if there is a dispute?
If you cannot reach agreement with your landlord on adjusted leasing arrangements due to COVID-19 then mediation will be available through existing State and Territory tenancy agencies and mechanisms.
If you believe you qualify for coverage by the Code of Conduct for commercial leases, HIA recommends you approach your landlord as soon as possible to discuss alternative arrangements.
Check for state or territory changes.
- The Victorian Government has announced that commercial tenants and landlords will be subject to a freeze on evictions and rental increases for six months. Some land tax concessions may be available for landlords and a system for resolving disputes between commercial tenants and landlords will also operate. Find out more.
Contact a HIA Workplace Adviser on 1300 650 620 for further information and advice.