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Scott Morrison has announced, on behalf of the National Cabinet, a set of proposed laws that will soon be legislated by a mandatory code to assist commercial landlords and tenants who are currently experiencing financial difficulties due to the impacts of COVID-19.

We understand from the announcement that these laws will need to be legislated by the states in order to give effect to the code.

The legislation will adopt the current ‘common set of principles’ that were announced on 29 March 2020 (read more here) and will provide tenants and landlords with a regulated structure as regards rent reduction and waiver of rent.

READ MORE: The next step for commercial tenants during COVID-19

Definitions

A tenant or landlord currently experiencing financial hardship is defined as a person or company that is currently eligible for the ‘Job-Keeper Program’ and comes under the following criteria:

1.       Has a turnover of less than $1bn and has lost 30% or more of their revenue compared to a comparable period a year ago;

2.       Has a turnover of $1bn or more and has lost at least a 50% of their revenue compared to a comparable period a year ago;

3.       For registered charities the threshold is a decline in turnover of 15% or more, under changes announced on 6 April.

4.       Big banks that are subject to the banking levy are not eligible.

To be eligible under the new commercial tenancy laws, a tenant or landlord needs to have LESS than $50 million turnover (as well as comply with the above requirements).

New Framework

·  Landlords with tenants that are eligible must provide rent relief proportionate to the percentage of the trading reduction in the tenant’s business.

·  The reduction will then be administered by way of a waiver or a deferral.

·  Landlords must waive at least 50% of the reduced rent.

·  The remaining rent will then be deferred and be paid back over a period of no less than 24 months, or by the end date of the current lease term, whichever is greater.

Example: your business has a monthly rent bill of $10,000.00. Your business has been reduced by 40% as a result of COVID-19. You are therefore eligible for a 40% reduction in your rent, bringing your rent bill to $6,000.00. Of the $4,000.00 reduction you receive, at least 50% ($2,000.00) of that is waived and does not need to be repaid to the landlord, the remaining $2,000.00 is then deferred to be repaid over at least 24 months, or the remaining term of your lease (whichever is greater). The repayment of the deferred rent, does not commence until the end of the pandemic (further explained below).

·  Landlords, during the period of the pandemic (yet to be defined), must not terminate a tenancy or draw on a tenant’s security due to non-payment of rent.

·  Tenants must abide absolutely by the terms of the lease.

Action

Scott Morrison also announced that the states will provide a binding mediation process for landlords and tenants that are unable to come to a decision or resolution in relation to the new framework.

What does this mean

Whilst the finer details of the mandatory codes in each state jurisdiction (as appropriate) are yet to come, questions remain as to the impact the new framework will have on the ability for landlords to meet any mortgage obligations.

Banks and the government have large parts to play in making sure the new framework is workable for both the landlords and the tenants.

As a tenant, you must review your financials to ascertain any loss of revenue suffered in your business as a result of COVID-19. Most importantly, you must abide by the terms of your lease until an agreement has been made with your landlord.

How can Attwood Marshall Lawyers help?

Our experienced Commercial Litigation Lawyers can provide you with expert independent legal advice about your specific circumstances as a tenant or landlord. Attwood Marshall Lawyers can review your lease, negotiate on your behalf, settle disputes or take legal actions if your rights are compromised.

For more information or to discuss your circumstances, please contact our Commercial Litigation Department Manager, Amanda Heather on direct line 07 5506 8245, email aheather@attwoodmarshall.com.au or free call 1800 621 071.

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Georgia Taylor

Georgia Taylor

  • Lawyer
  • Commercial Litigation
  • Direct line: 07 5506 8253
  • Mobile: 0423 842 969