Along with labour, rent is generally the biggest cost item for any business. As millions of Australian workers have been stood down or terminated because of a reduction in trade due to coronavirus, extreme pressure is also being applied to affected businesses to meet their rental payments.
After several weeks of vigorous debate over the competing financial interests of commercial tenants and landlords, on 8 April the Federal Government announced a mandatory code that will oversee commercial leases during the pandemic.
Guaranteed protections and safeguards have been provided to small and medium-sized business tenants with an annual turnover of less than $50 million; and which are eligible for the Government’s ‘Job Seeker’ rescue package. To receive ‘Job Seeker’, a business must have suffered a 30 percent or greater decline in revenue from the same one-month period 12 months ago.
The mandatory code, which will be buttressed by State Government framework, offers commercial tenants rental relief through a combination of deferrals and waivers, and also declares a moratorium on evictions for at least the next six months.
Landlords are also prevented from increasing rents during that period. Discounts in rent are expected to be scaled in accordance with the business tenant’s decline in revenue. This will require financial transparency from tenants.
In return for receiving these waivers or deferrals, distressed tenants must honour their lease. This means any rent deferred during the pandemic must be paid back over the residue of the current lease, so as to protect the landlord’s financial position.
The Federal Government has acknowledged these arrangements will require a large degree of honesty, transparency and co-operation between tenants and landlords to successfully implement. Given these parties generally have competing interests, it is foreseeable that conflicts and disagreements might arise in the course of these negotiations.
In order to protect your commercial interests during this extremely volatile time, access to sound legal advice over the course of such vital negotiations is important.
Tonkin Drysdale Partners has more than 60 years’ experience in commercial leasing. If your business is about to enter mandatory COVID-19 negotiations around a current lease, please contact us for an obligation-free chat.