Rental Support during Covid-19

The federal government’s  mandatory Code of Conduct for commercial leasing principles during COVID-19 has resulted in State Governments making various announcements.

Businesses need to eligible for the JobKeeper scheme to qualify.

Note that tenants and landlords are expected to negotiate between themselves and mediation may be through State Government services.

Alternative arrangements to the code can be agreed upon.

Please see directly below for details and links for State Government announcements and further below for the leasing principles of the code and an example rent relief calculation provided in the code.

  • The NSW Government hasannounced rental support measures which includes a $440 million land tax relief package for eligible landlords if they pass on the savings to their tenants. Read more about the rental support.
  • The Northern Territory will provide incentives for commercial landlords to reduce rents as part of its $180 million additional support to businesses under its Jobs Rescue and Recovery Plan.
  • The Queensland Government has recently announced protections for retail and commercial tenants. The protections would be underpinned by $400 million in land tax relief for property owners, which must be passed on to tenants. Read more about the rent relief.
  • The Victorian Government has announcedcommercial and residential rental support which includes a $420 million land tax relief package. If a landlord provides tenants impacted by coronavirus with rent relief, they will be eligible for a 25% discount on their land tax, while any remaining land tax can be deferred until March 2021.
  • The Western Australian Government has announcedit will provide new laws to protect commercial and residential tenancies.

In Victoria, for commercial tenants and landlords, the scheme will provide the following support:

  • a six-month moratorium on commercial tenancy evictions from 29 March 2020 for the non-payment of rent for small to medium enterprises with an annual turnover under $50 million that have experienced a minimum 30 per cent reduction in turnover due to coronavirus (COVID-19)
  • freeze on rent increases during the moratorium for commercial tenants
  • a rental payment waiver or deferral proportionate to commercial tenants’ income reduction due to coronavirus (COVID-19), to be negotiated between tenant and landlord
  • a mediation service for commercial tenants and landlords to support fair tenancy negotiations.

The Victorian Government will also provide land tax relief to commercial landlords that provide rent relief to their tenants, provided:

  • the tenant’s annual turnover doesn’t exceed $50 million
  • is an eligible business in the Commonwealth’s JobKeeper program, and
  • is suffering financial stress or hardship as a result of the pandemic.

The Victorian Government will also provide land tax relief to residential landlords who provide rent relief to eligible tenants.

LEASING PRINCIPLES

In negotiating and enacting appropriate temporary arrangements under this Code, the following leasing principles should be applied as soon as practicable on a case-by-case basis:

  1. Landlords must not terminate leases due to non-payment of rent during the COVID-19 pandemic period (or reasonable subsequent recovery period).
  2. Tenants must remain committed to the terms of their lease, subject to any amendments to their rental agreement negotiated under this Code. Material failure to abide by substantive terms of their lease will forfeit any protections provided to the tenant under this Code.
  3. Landlords must offer tenants proportionate reductions in rent payable in the form of waivers and deferrals (as outlined under “definitions,” below) of up to 100% 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.
  4. Rental waivers must constitute no less than 50% of the total reduction in rent payable under principle #3 above 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. Regard must also be had to the Landlord’s financial ability to provide such additional waivers. Tenants may waive the requirement for a 50% minimum waiver by agreement.
  5. Payment of rental deferrals by the tenant must be amortised over the balance of the lease term and for a period of no less than 24 months, whichever is the greater, unless otherwise agreed by the parties.
  6. Any reduction in statutory charges (e.g. land tax, council rates) or insurance will be passed on to the tenant in the appropriate proportion applicable under the terms of the lease.
  7. A landlord should seek to share any benefit it receives due to deferral of loan payments, provided by a financial institution as part of the Australian Bankers Association’s COVID-19 response, or any other case-by-case deferral of loan repayments offered to other Landlords, with the tenant in a proportionate manner.
  8. Landlords should where appropriate seek to waive recovery of any other expense (or outgoing payable) by a tenant, under lease terms, during the period the tenant is not able to trade. Landlords reserve the right to reduce services as required in such circumstances.
  9. If negotiated arrangements under this Code necessitate repayment, this should occur over an extended period in order to avoid placing an undue financial burden on the tenant. No repayment should commence until the earlier of the COVID-19 pandemic ending (as defined by the Australian Government) or the existing lease expiring, and taking into account a reasonable subsequent recovery period. 10. No fees, interest or other charges should be applied with respect to rent waived in principles #3 and #4 above and no fees, charges nor punitive interest may be charged on deferrals in principles #3, #4 and #5 above.
  10. Landlords must 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.
  11. The tenant should be provided with an opportunity to extend its lease for an equivalent period of the rent waiver and/or deferral period outlined in item #2 above. This is intended to provide the tenant additional time to trade, on existing lease terms, during the recovery period after the COVID-19 pandemic concludes.
  12. Landlords agree to a freeze on rent increases (except for retail leases based on turnover rent) for the duration of the COVID-19 pandemic and a reasonable subsequent recovery period, notwithstanding any arrangements between the landlord and the tenant.
  13. Landlords may not apply any prohibition on levy any penalties if tenants reduce opening hours or cease to trade due to the COVID-19 pandemic.

Example from the code

Qualifying tenants would be provided with cash flow relief in proportion to the loss of turnover they have experienced from the COVID-19 crisis o

  1. a 60% loss in turnover would result in a guaranteed 60% cash flow relief. At a minimum, half is provided as rent free/rent waiver for the proportion of which the qualifying tenant’s revenue has fallen.

Up to half could be through a deferral of rent, with this to be recouped over at least 24 months in a manner that is negotiated by the parties

If the tenant’s revenue has fallen by 100%, then at least 50% of total cash flow relief is rent free/rent waiver and the remainder is a rent deferral.

If the qualifying tenant’s revenue has fallen by 30%, then at least 15% of total cash flow relief is rent free/rent waiver and the remainder is rent deferral.

Care should be taken to ensure that any repayment of the deferred rent does not compromise the ability of the affected SME tenant to recover from the crisis.  

The parties would be free to make an alternative commercial arrangement to this formula if that is their wish.