Can Your Business Negotiate Under the Commonwealth’s Rent Relief Package?
-Businesses meet the JobKeeper eligibility can negotiate with their landlord
-Landlords must reduce a tenant’s rent in proportion to their drop in turnover
-These negotiations must meet the code of conduct produced by the government
-You will be required to provide evidence of a 30% drop in YOY turnover, or
-A 50% drop in turnover if you earn more than $1 billion a year
-There is a six-month moratorium on non-payments on commercial property
-Landlords will not be able to withdraw a tenant’s bond without attending the tribunal
Last week, Prime Minister Scott Morrison announced a rent relief package for small and medium-sized businesses, introducing new rental waivers and deferrals for commercial tenants that are being profoundly impacted by the financial hit of the coronavirus pandemic.
In short, the introduction of the mandatory code of conduct that applies to commercial leases entitles eligible tenants to receive either a rent reduction in the form of a waiver or deferral, and sets a number of ‘good faith’ principles that landlords and tenants must meet.
Mr Morrison said that “this preserves the lease, it preserves the relationship, it keeps the tenant in the property. The code brings together a set of good-faith leasing principles.”
“Landlords must not terminate the lease or draw on a tenant’s security. Likewise, tenants must honour the lease,” he added. The PM has told banks to provided financial support to tenants and any landlords that have been put out by the pandemic, asking for “appropriate flexibility” to be practiced.
“My message to tenants, particularly commercial tenants, and commercial landlords is a very straightforward one- we need you to sit down, talk to each other and work this out about looking at the businesses which have been closed, businesses that may have had a significant reduction in their revenues,” Morrison said.
With frequent updates and a prevalence of misinformation out there, it’s become a difficult task for small and medium-sized business operators to get a straight answer, so we’ve compiled all the information you need here in this post.
Your organisation is eligible for a negotiation of rent, application for waivers and deferrals if your business has a turnover of less than $50 million, and meets eligibility criteria of the new JobKeeper wage subsidy scheme. In addition, landlords will not be able to evict you from a commercial premise for the next six-months.
Under the government’s set of guidelines, the waivers on offer will have to amount to at least 50% of the reduction in a tenant’s business, and deferrals must be spread over the remaining time of the lease, or at least 24 months.
According to a release from Business.gov.au, employers, including non-profits will be eligible for the JobKeeper payment if:
Their business has a aggregated turnover of less than $1 billion (for income tax purposes) and they estimate their turnover has fallen by more than 30 per cent or more; or
Their business has an annual turnover of $1 billion or more (for income tax purposes) and they estimate their turnover has fallen or will likely fall by more than 50 per cent; and
The business is not subject to the Major Bank Levy.
Under the JobKeeper scheme, the organisation is obligated to produce evidence of a decline in turnover equating to more than 30% when compared to the same time last year. So, if your organisation meets the criteria of the JobKeeper subsidy package, it also qualifies for negotiations for your commercial rent payments under the recently-introduced code.
According to a media release from the Prime Minister’s office, the principles that guide the code are as follows:
Where it can, rent should continue to be paid, and where there is financial distress as a result of COVID-19 (for example, the tenant is eligible for assistance through the JobKeeper program), tenants and landlords should negotiate a mutually agreed outcome
There will be a proportionality to rent reductions based on the decline in turnover to ensure that the burden is shared between landlords and tenants
There will be a prohibition on termination of leases for non-payment of rent (lockouts and eviction)
There will be a freeze on rent increases (except for turnover leases)
There will be a prohibition on penalties for tenants who stop trading or reduce opening hours
There will be a prohibition on landlords passing land tax to tenants (if not already legislated)
There will be a prohibition on landlords charging interest on unpaid rent
There will be a prohibition on landlords from making a claim to a bank guarantee or security deposit for non-payment of rent
Ensure that any legislative barriers or administrative hurdles to lease extensions are removed (so that a tenant and landlord could agree a rent waiver in return for a lease extension)
According to data from the Australian Bureau of Statistics, 38% of Australian businesses have renegotiated their commercial rent or lease arrangements, while 24% have arranged the deferral of loan repayments.
Lawfirm Gilbert + Tobin have put together a comprehensive guide breaking down the legalese of the policy, and explain that “any rental waivers must constitute no less than 50% of the total rent reduction during that period. Tenants may waive the 50% waiver requirement by agreement with the landlord,” as well as the fact that “landlords must not draw on a tenant’s security for the non-payment of rent,” and stating outright that “landlords must not terminate a lease for non-payment of rent during the pandemic period or the subsequent recovery period.”