COMMERCIAL PROPERTY, SALES & LEASINGCORONAVIRUS COVID-19 PANDEMIC

PM backs commercial tenancy code of conduct

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PRIME minister Scott Morrison has outlined a new mandatory commercial tenancy code of conduct for distressed tenants and landlords during the covid-19 pandemic.

The PM said the new code supports the government’s “hibernation strategy” for small to medium sized businesses during this crisis by assisting businesses carry the burden to enable the economy to “rebuild and regrow on the other side”.

“That means keeping jobs, keeping businesses, keeping tenancies in place, keeping loans in place and credit lines open … so on the other side of this crisis, the economy is able to rebound again,” he said.

The code which will be implemented by the states and territories, will require landlords to reduce the tenant’s rent in proportion to a reduction in trade revenue defined in percentage, via a combination of rent deferrals and waivers over the covid-19 pandemic period.

Half the rental decrease will be calculated by the discount and the other half will be deferred which must be repaid after covid-19 and before lease expiry.

Furthermore, the code will apply to companies with a turnover over $50 million or less and those eligible for the JobKeeper program.

Morrison said the state and territory governments will introduce a binding mediation process which will require landlords and tenants to “sit down and work it out”.

And for landlords who ignore the tenants’ pleas, the PM said this is a mandatory code and warned that: “If landlord doesn’t cooperate, they will be forfeiting their rights under the lease,”

Morrison said good faith leasing principles will ensure landlords must not terminate the lease or draw on tenant’s securities and in return, the tenants must honour lease requirements.

The PM said the burden must be shared and called on the banks to come to the table including international banks which operate in Australia, to support distressed landlords who cannot meet their loan obligations.

The new code follows extensive consultation with the industry and comes a week after the peak bodies representing shopping centre landlords and retailers reached an agreement.

The Australian Small Business and Family Enterprise Ombudsman Kate Carnell said the code paves the way for small businesses to negotiate some rent relief with their landlords.

Carnell said there is give and take here, so small businesses cannot just stop paying rent and equally landlords cannot evict or terminate the lease.

“Tenants must honour their lease agreement and landlords are prohibited from drawing on a tenant’s security. Importantly, eligible small businesses who have seen a reduction in trade, will be able to negotiate a proportional rent reduction with their landlord.

“Australian banks have already indicated they will support landlords that support their tenants and I would urge international banks to take the same approach,”

Carnell said there are no easy solutions to this problem, but if all parties involved can come to these negotiations in the spirit of co-operation, there’s a good chance of reaching an agreement.

The Australian Retailers Association (ARA), National Retail Association (NRA), Pharmacy Guild of Australia (PGA), and Shopping Centre Council of Australia (SCCA) welcomed the code of conduct and said they are ready to work with the states and territories to implement a sensible solution.

NRA CEO Dominique Lamb said the code is sensible and proportionate.

“It will ensure – to the greatest degree possible – that businesses who suffer a major downturn have the best chance of surviving. And that is good for both tenants and landlords. Just as we want to see businesses survive to keep employing their staff, property owners will also want to see the retail sector survive,” Lamb said.

ARA’s Russell Zimmerman said the most important issue is that the industry is talking, and landlords and tenants are working together to ensure business continuity.

PGA national president George Tambassis said the code would provide clarity for commercial tenants, including community pharmacies, where they need to negotiate arrangements with landlords during the COVID-19 downturn.

SCCA CEO Angus Nardi said its key focus is on small, medium and family businesses.

“Every day, our members are having hundreds of conversations with their retailers. Like many other industries, centre owners are receiving high volumes of requests for assistance. These are being worked through as quickly as possible,” Nardi said.

As for residential tenancies, the prime minister said it will be up to individual states and territories to solve, although he backed a six-month moratorium on evictions for commercial and residential tenants in distress last month.

So far most states and territories have yet to reveal a residential tenancy code of conduct, which has been pushed back for another week to the frustration of the property industry. The Real Estate Institute of Australia president Adrian Kelly expressed disappointment there was no national approach for residential real estate.

Kelly said he understood the complexity of eight jurisdictions but the rationale that commercial tenancies have a wide national impact, in this case economic, applies also to residential tenancies.

“For residential it is a social as well as economic impact – after all we all live in dwellings and not all of us either own or lease commercial property.

“We now face the potential situation where Australians will be treated differently depending on where they reside. This will add to the confusion and most likely there will be the misinterpretation of messaging,” Kelly said.

Last week the corporate regulator ASIC was forced to warn real estate agents against advising distressed tenants to withdraw their superannuation to pay rent.

“REIA requests that further consideration be given to a national approach to residential real estate.” Kelly said.

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