COVID19 – Tenants Update – Commercial Properties – Code of Conduct

On April 7, 2020, the Prime Minister announced the passing of a Mandatory Code of Conduct for Landlords to assist small and medium businesses and Not For Profit tenants.

This is good news for businesses who are small and medium, and are struggling to keep their doors open. Businesses should be reviewing their cashflows and checking what is available to them in terms of government assistance, be that from JobKeeper, or JobSeeker, or loan repayment relief from the banks.

Refer to the article at the end of this Newsletter for more information in this regard.

The background of the Code was to provide guidelines after the passing of laws last week to outlaw evictions up to the end of September 2020, depending on how long the deepening financial and economic crisis continues.

For tenants, this is a summary of points to be considered:

1. To be eligible a tenant’s business must qualify for the JobKeeper Allowance. The JobKeeper Allowance is only available for businesses which have had a fall in their turnover by more than 30%, and have an annual turnover of under $50,000,000. JobKeeper newsletter here.
2. Landlords must offer tenants proportionate reductions in rent payable in the form of waivers and deferrals of up to 100% of the ordinary amount payable;
3. Rental waivers (that is non-recoverable) must constitute no less than 50% of the total reduction in rent payable. This means that landlords need to be prepared to forgo 50% of the rent for the period of the COVID-19 pandemic (to 30 September 2020);
4. Payment of the rental deferral component by the tenant must be paid back over the balance of the Lease term, and a minimum of 24 months, which may mean that Leases need to be extended when the remaining term is less than 24 months;
5. If the Landlord is successful in obtaining reductions in outgoings, such as Council Rates, Land Tax and Insurance, they are to be passed on to the tenant;
6. A Landlord should seek to share any benefit it receives through the deferral of loan payments provided by a financial institution, with the tenant in a proportionate manner;
7. Landlords should waive recovery of any outgoings payable during a period that the tenant is unable to trade;
8. Landlords must not draw on a tenant’s security for the non-payment of rent during the period of the COVID19 pandemic, and or a reasonable subsequent recovery period;
9. The tenant should be provided with an opportunity to extend its lease for the rent waiver and deferral period; and
10. Landlords agree to a freeze on rent increases (except for retail leases based on turnover rent) for the duration of the COVID-19 pandemic.

As a tenant, you should be prepared to disclose all information relating to your business, and to provide full and frank disclosure, as is required by the Code. The Code references to information such as copies of accounting reports, BAS returns and other information which can assist the Landlord to determine your qualification, but also the amount of the assistance that can be provided.

Here are some things to consider for your position as a tenant:

1. Contact your Landlord and provide as much information that you can, including:
   • Any accounting and related data to evidence that you are a qualifying business pursuant to the COVID-19 pandemic
   • Are defined as being in Financial Stress or Hardship as defined by the Code of Conduct;
2. Review your Lease to determine:
   • What is the current rent and outgoings being charged per month (You are able to ask for at least 50% of this per month);
   • How long do you have left on your Lease?
   • Do you have any options to extend?
   • What is the clause in your Lease relating to recoverable outgoings?
   • How much security deposit, bond or guarantee do you have available?
3. Review your own financial position, which includes:
   • Are you eligible for the ATO grants for PAYG Withholding, to help you to keep your cash flow and staff employed?
   • Are you eligible for JobSeeker or JobKeeper Allowances to supplement your income?
   • Do you have loans for your business?
   • What is the minimum that you require to be able to pay your day to day expenses?
   • As a worse case, do you have access to any superannuation?
   • See this link for more information.

4. Document all changes made to the Lease, as this will not only protect you in the event that there is an issue with the Code of Conduct, but it is always best to have things in writing.

As with all crises, we remind clients to use this as an opportunity to review their operating structures and reset their business for the future.

The full media release from the Prime Minister can be read at this link:

https://www.pm.gov.au/media/update-coronavirus-measures-070420

Here is a link to the full Code of Conduct:

https://www.pm.gov.au/sites/default/files/files/national-cabinet-mandatory-code-ofconduct-sme-commercial-leasing-principles.pdf

For more information please refer to these links to recent Newsletters:

• Update for Commercial Tenants
• Financial crisis assistance – Landlords & Tenants

We are keeping clients informed with new and updated information as it comes to hand, so please check the News on our website on a regular basis.