Tenants in commercial premises will receive rent reductions which are proportional to their loss in turnover under a mandatory code of conduct being considered by the Federal Government.
In his address to the media following the National Cabinet meeting last Friday, Prime Minister Scott Morrison said that whilst industry had been working on a mandatory code of conduct which would protect commercial landlords and tenants during the coronavirus crisis, this had not reached a point where cabinet was satisfied with the level of protection delivered.
Nonetheless, he outlined several principles which guided government expectations for the code.
Most important is the principal of proportionality, under which tenants would be entitled to a reduction in rent which is proportional to their loss of revenue.
How this would work would be flexible, and landlords and tenants would be required to negotiate in good faith to arrive at mutually workable arrangements.
“What is important as part of this code is that both parties negotiate in good faith, that there is a proportionality principle that needs to be in this code,” Morrison said.
“And that proportionality principle is simply this, that the turnover reduction of the tenant needs to be reflected in the rental waiver of the landlord.
“Now, how that is done inside the lease is up to the landlord and the tenant. There are many different ways you can achieve this. If, for example, there was a 3 or 6 month rental waiver because a lessee, a tenant would have had to close their doors and there’s just simply no money coming in. Then one way to achieve that is to extend the overall lease by 6 months on the other side, if they’re going to give a rental waiver. Similarly, they could agree to a different level of rent over the entire term of the lease. And that was shared over a longer period of time.
“These are things that we do not wish to be prescriptive about. What we want to do is have landlords and tenants in the room to ensure that they can work these issues out between them, so they can have an arrangement which enables them to get through this period and to get to the other side.”
The code will be given mandatory status through state and territory government legislation.
It will apply where turnover is less than $50 million annually and tenants are a participant in the JobKeeper wage subsidy program (to be eligible for this, tenants will need to have a reduction of 30 percent or more).
Aside from proportionality, the code will enshrine protection for matters such as claims on penalties or actions of guarantees of interest protection on rent.
Morrison said the Cabinet would consider the matter again by Tuesday morning at the latest.
Whilst banks were not party to commercial leasing arrangements, he says they should work with both parties to facilitate mutually workable arrangements.