Government has Announced: Rent Relief Must be Given!

By Reza Honarvar

Commercial property tenants have been awaiting the government’s decision to help them find relief for their current situations. Yesterday, the Government announced Landlords will now be legally required to enter negotiations with their tenants and provide relief if they meet the criteria. 

Over the past 10 days, key industry leaders and the treasurers of the states and territories have met to review the Commercial Tenancy code and offer a solution to struggling tenants and landlords. 

“Now, as you know, a key part of our Government’s strategy at a federal level, working with the states and territories, is what has been called the hibernation strategy. And what that means is being able to preserve as much of the foundations and pillars of our economy through this time to enable the economy to rebuild and grow on the other side.” Scott Morrison. 

As a result of these meetings, a mandatory code will be legislated and regulated.

The code will apply to retail, office and industrial tenancies where the tenant or landlord is eligible for the JobKeeper Program and has a turnover less than $50 million. The code is designed to support SME’s, be they a tenant or landlord. 

“Landlords will be required to reduce rent proportionate to the trading reduction in the tenant’s business, through a combination – over the course of the pandemic period – through a combination of waivers of rent and deferrals of rent”

“Waivers of rent must account for 50 per cent at least, of the reduction in the rental provided to the tenant during that period and deferrals must be covered over the balance of the lease term and in no less period than 12 months” For example, if there is 3 years remaining on the lease, the tenant can cover the costs of the deferrals over the 3 year period. If there is only 6 months remaining on a lease, the tenant has 12 months to cover the deferred payments. 

There will be a binding mediation process between the tenant and the landlord, that is overseen by the states and territory governments. 

“Banks also must come to the table here and provide the support to the landlords” Scott Morrison

“What this does is it preserves the lease, it preserves the relationship, it keeps the tenant in their property and it keeps a tenant on the lease, which is also good for the landlord, and it preserves the lease that is in place that underpins the value of those assets. And so, this is seen as a proactive, a constructive and cooperative mechanism for landlords and tenants to see this through together.” Scott Morrison

What happens if a landlord is refusing to engage in negotiations with a tenant?

“They are legally required to do it. So in not following the legal requirement, they would be forfeiting their rights under the lease.” Scott Morrison. 

So what should a tenant do now?

If you meet these criteria:

  • Eligible for JobKeeper Payments
  • Turnover less than $50 Million

You need to set up a negotiation with your landlord, to decide on rent waivers or referrals. Remembering:

  • Waivers of rent must account for 50 per cent at least, of the reduction in the rental provided to the tenant during that period
  • Deferrals must be covered over the balance of the lease term if over 12 months. 

Landlords are legally required to entered negotiations with tenants.