21ST APRIL, 2020
The Federal and State governments in Australia are offering extensive support to help commercial tenants pay their rent during COVID-19. If you’re a small business owner in need of rental assistance, here’s what you need to know.
For businesses impacted by the coronavirus pandemic, cutting back on all non-essential costs has been one of the only ways to stay afloat. But, as many businesses remain in lockdown, there are some substantive costs that are difficult to cut – and rent is one of them.
Early-stage and small businesses often rely on their monthly revenues to make their rental payments, and with demand having drastically dropped for so many industries, it is becoming increasingly common for these business owners to come up short on their lease payments.
Here in Australia, the Federal and State governments have recognised the significance of this issue and have taken drastic measures to try and ease the burden for business owners by offering them rental relief and assistance.
Scott Morrison’s moratorium on evictions and mandatory code of conduct
The Morrison Government unveiled its rental assistance scheme in early April, which comprised of two key elements: a six-month moratorium on rental evictions for tenants in financial stress due to COVID-19 and a mandatory code of conduct for landlords and operators that outlines the way they must treat eligible SME tenants.
With regards to the moratorium, a landlord will be unable to issue an eviction notice for six months to businesses that cannot meet their rental commitments due to financial distress caused by the novel coronavirus, COVID-19. This protection from eviction applies to commercial tenants who have lost at least 25 percent of their income as a result of the coronavirus crisis.
Commercial landlords will also be expected to uphold the mandatory code of conduct when dealing with tenants who have less than $50 million in annual turnover, and are eligible to apply for the Federal Government’s JobKeeper scheme.
As part of the code, landlords will be expected to offer a reduction in rent that is proportionate to the tenant’s decline in turnover as a result of COVID-19. The amount reduced will need to be negotiated through an approved mediation process.
Landlords will also need to allow for their eligible tenants to defer rental payments. These deferrals can be expected to be covered over the life of the lease and must be no less than 24 months. There are a number of additional prohibitions that the code places on landlords, including (but not exclusively):
- On penalties for tenants who reduce operating hours or stop trading
- On passing land tax on to tenants
- On charging interest on unpaid rent
The Prime Minister said that the proposed code of conduct “brings together a set of good-faith leasing principles”, and he handed the responsibility of legislating and implementing this mandatory code of conduct on to the various state governments across Australia.
Rent relief state-by-state
In addition to the Federal Government’s eviction moratorium and mandatory code of conduct, the various state governments across the country gradually announced their own rent relief packages – pledging millions of dollars’ worth of rental assistance across residential and commercial tenancies. New South Wales
The NSW State Government promised $440 million in rental relief, which will be evenly divided between residential and commercial tenancies.
In a move to further protect tenancies across the board, the NSW government has issued an interim 60-day moratorium on all new applications to the NSW Civil and Administrative Tribunal for evictions relating to missed rental payments due to COVID-19.
Tenants will remain protected from eviction until they have come to an agreement with their landlord as to how to proceed.
If after the imposed 60-day moratorium, the decision is to evict, the landlord will be able to repossess the property – but the eviction will not result in a black mark against the tenant’s name for future rentals.
The $220 million being allocated to the commercial sector will cover businesses like cafes, gyms, beauty salons, restaurants and offices that have been negatively impacted by the virus.
Premier Daniel Andrews unveiled his $500 million rent relief package for Victoria, the majority of which will be devoted to land tax relief for landlords who offer rent discounts to their tenants.
Victorian tenants affected by the crisis who are unable to secure a discount on rent are able to enter into a dispute resolution process with binding mediation.
The City of Melbourne council has also taken various measures to offer relief to tenants based in the CBD.
If a business is a tenant of a council-owned property, they can apply to have their rent halved – assuming they meet a variety of eligibility criteria.
The nation’s capital has also extended an olive branch to landlords and tenants alike, offering a land tax rebate to landlords who reduce tenants’ rent by a minimum of 25 percent for up to six month.
Additionally, the ACT Government is offering to match 50 percent of the rent reduction offered by landlords over a six-month period, up to a maximum of $2,600.
The Sunshine State’s $400 million rent lifeline largely focuses on offering land tax waivers and deferrals for landlords who offer rent discounts to their tenants.
The Queensland government is also offering payments for a month’s worth of rent (capped at $2,000) to those businesses who are unable to make rental payment through other means. Additionally, Queensland’s government is increasing the extent of the federal government’s 6-month eviction moratorium, so it applies to all businesses who are facing eviction due to COVID-19 related missed rental payments. Landlords will also be prohibited from evicting tenants whose leases expire during the crisis.
There hasn’t been a whole lot of action in Tasmania from a rental relief standpoint, aside for the state officially legislating its moratorium on evictions.
Discretionary assistance has also been made available to landlords who are struggling to pay their land tax obligations.
Australia’s southern state has also legislated a short-term moratorium on evictions and has banned rent increases across the board.
The South Australian Government has also promised to protect tenants from being blacklisted as a result of any issues arising from the crisis.
Significant land tax cuts have also been offered to landlords, as well as the ability to defer land tax payments by up to six months.
Western Australia has joined the likes of Tasmania and South Australia by legislating the moratorium on evictions and has also banned rental increases during the crisis period. The WA state government has also announced that fixed-term rental agreements that are set to expire during the crisis will continue as periodic rental agreements, which means that the terms will be reviewed on a monthly basis.
Australia’s northern-most territory is yet to pull the trigger on any specific rent relief opportunities, but has a parliament meeting scheduled for this week to continue working towards the unveiling of its own relief strategy for commercial and residential tenants.
Expert advice – negotiate wisely
A big part of the Federal Government’s mandatory code of conduct comes down to the negotiation between the tenant and landlord.
Many commercial real estate agents have been stepping up to the plate to help both sides reach appropriate outcomes, and an example of such an agent is Melbourne’s Besser and Co Real Estate Agents.
When chatting to the company’s managing director, Dion Besser, I asked him whether he had noticed any common mistakes being made by commercial tenants when negotiating reductions in rent.
Besser said that he found tenants were agreeing to arrangements and timeframes that were not particularly favourable to them – just to move things along quickly.
“Landlords want certainty, and are therefore locking small business owners into periods of time for which they are happy to defer or waive rental payments,” Besser told The Pulse.
“An SME that locks itself in to a specific arrangement for a lengthy period is only making it harder for themselves to negotiate extensions beyond the original period specified.”
To avoid making that mistake, Besser encouraged SMEs to push for arrangements that cover “shorter periods of time”, so that matters can be reassessed on a “relatively frequent basis”.
Besser also explained that landlords are likely to be open to such arrangements due to the comfort in knowing that in the event that the “tenant’s business can reopen sooner than expected”, they will they are likely to agree to revert back to the initial arrangement.
“Landlords don’t want empty properties – so the ability to communicate well is key in getting through this period.
“SMEs should give their landlords the confidence that they are doing everything in their power to make the best of the situation.
“By creating such an impression, the landlord will do as much as they can to keep you in the premises on more favourable terms.”