Commercial TenanciesApril 9, 2020
New measures for landlords and tenants
A mandatory code of conduct signed off by the National Cabinet yesterday will force commercial landlords to accept rent reductions in proportion to a tenant’s decline in turnover due to COVID-19. Landlords are required to offer tenants at least 50% of their rent relief as ‘waivers’ over the next few months and the remainder in deferrals. The ‘good-faith’ leasing principles should be negotiated individually between landlords and their tenants, and are designed to aid the management of cashflow for SME tenants and landlords on a proportionate basis, as a result of the economic impacts of COVID-19.
Here’s the key points:
- The tenant must be eligible for the JobKeeper payment (demonstrating a 30% reduction in turnover and having a maximum annual turnover of $50 million)
- Landlords must not terminate leases and tenants must honour their agreements
- Waivers of rent must account for at least 50% of the reduction in the rental provided to the tenant during that period. (Landlords are expected to wear this cost)
- Deferrals must be covered over the balance of the lease term, and in no less period than 12 months.
- In theory, if the business revenue has reduced by 100%, the rent could be reduced by 100%
- There will be a freeze on rent increases (except for turnover leases)
If you’re a tenant we encourage you to share turnover information with your landlord, so you can start negotiations about how big rent reductions should be.
If you’re a landlord, you cannot refuse requests for rent relief from SME tenants that are eligible for the JobKeeper scheme. Individual negotiations need to take place to agree waivers and deferrals but you must follow the terms of the mandatory code. See details of the mandatory code of conduct.
It is important to note that for both parties this is a negotiation process. Although the mandatory code must be followed it is important that the end result is fair to each.