Latest Government Update: Commercial & Residential Leases

On Friday afternoon, the Federal Government provided further guidance on Commercial & Residential Leases but still no great detail. In our opinion, this has been a major “hole” in the current government incentives that have been announced and one that will have an effect on all Australians regardless if you are a landlord, tenant, homeowner or renter. The government delay in finding a solution to this difficult issue we can only assume is directly related to the consequences it will have upon property pricing, bank lending policies and affordability of rent in our Post-Corona life.

The main focus on the Federal Governments’ comments on Friday was on Commercial Leases. We believe residential properties will be dealt with through rent assistance packages for qualifying tenants of the JobSeeker and JobKeeper programs. There is expected to be an announcement this week with a Tenancy Code of Practice being put in place that will provide the fine details required to answer the many various situations that will be encountered, so more detail to come soon.

Key Points from the Prime Ministers Address:

• A new Tenancy Code of Practice, prepared by the Federal Government and National Cabinet will be produced and entered into all Retail and Commercial Acts throughout Australia, effectively a “Corona Virus Section”.
• The new code will be made a mandatory code and incorporated into all state and territory legislation for tenants whose business has a turnover of less than $50m turnover, and they are a participant in the JobKeeper program – this will make the new enforceable laws consistent across all of Australia
• To qualify for the JobKeeper program, a business’ must have a turnover of less than $1 billion and their turnover will be reduced by more than 30 per cent relative to a comparable period a year ago (of at least a month)
• Rent relief was only available for Coronavirus-affected business, he stated “a tenant who hasn’t had a reduction in their business turnover, then your leasing arrangements stand”
• It is our opinion that a business would first have to qualify for the JobKeeper program on a month by month reporting program with the ATO and then any rent reduction would be proportionate to the drop in turnover, for example, a business suffering a 40{b8e7c7f951a33340f874b6d86f318d9ec4412e46b7f65591a459ed670b119c83} reduction in turnover will lead to a rent reduction of 40{b8e7c7f951a33340f874b6d86f318d9ec4412e46b7f65591a459ed670b119c83} and will have to be paid back Post-Corona
• An example used was of a business that had been completely shut down by the government measures and had nil income currently coming in, they would not be required to pay any rent for that period for example 3 months but that 3 months would be added to the end of the lease term or the rent could be spread across the remaining payments of the term, once they returned back to business.
• There has been no mention of the outgoings or other associated costs such as insurance, as yet – I would expect this to be addressed in new Code to be announced this week

There are obviously a number of questions that still need to be answered. I still urge both landlords and tenants to view each other’s position with respect and on a case by case basis as the new code will attempt to be a fix-all measure across all businesses and we all know that is not how the world works.

Please do not hesitate to contact us if you have any further queries regarding the above, we will stay on top of any new announcements and provide updates as they become available.