The National Cabinet has released a Mandatory Code of Conduct for landlords and tenants during the COVID-19 crisis.
The Code deals with the temporary reduction of rents for those tenants whose businesses are adversely affected by trade during the crisis.
While the principles of the Code are not yet legislated, we expect that the State Government will impose laws, backdated to 3 April 2020, to formalise the Code within the next fortnight.
The Code will apply to tenants of commercial and industrial premises that are a small to medium sized business with an annual turnover of up to $50 million and eligible for the JobKeeper Payment.
Where a tenant is still trading, accounting evidence of their actual decline in turnover relative to the same period in 2019 will need to be provided to the landlord. The tenant will then be entitled to a rent reduction equivalent to the percentage drop in turnover.
The Code prescribes an “ideal” composition of the reduction as 50% rental waiver and 50% rent deferral for the period of the crisis. The deferred rent will then be recouped by the landlord over either the next 24 months or the balance of the lease term.
For example, a tenant who suffers a 50% loss in trading turnover during a month would be eligible for a 50% reduction to their monthly rent as “cash flow relief”. If the tenant was due to pay $40,000 a month in rent, a discount of $20,000 would apply and structured as a $10,000 “waiver” and $10,000 “deferral” to be recouped by the landlord after the crisis period.
Where a tenant is no longer trading due to mandatory social distancing requirements or the economic impact of the crisis, the tenant will be entitled to a 100% rent reduction to be structured in the same manner of waiver and deferral components.
Residential property owners and managers are also being encouraged to negotiate with tenants impacted by the COVID-19 economic downturn.
The Queensland Government has placed a freeze on evictions due to rent arrears for 6 months, commencing from 29 March 2020. This moratorium is available for all tenants experiencing financial distress associated with the impact of the crisis. If a lease is set to expire during the pandemic period, the landlord will be required to offer a 6-month extension of the term to the tenant. Alternatively, where tenants cannot pay rent due to the impact of the crisis, tenants may be entitled to end their lease earlier than the termination date under their lease.
The State Government has introduced a three-month rebate of land tax for the 2019-20 land tax year and a further three-month deferral of land tax for the 2020-21 land tax year for commercial and residential property landlords who provide rent relief to their tenants affected by the crisis.
As with all agreements, any variations to residential and commercial tenancy agreements should be recorded in writing and acknowledged in the appropriate documents. Thynne + Macartney is working with landlords to understand these government frameworks and are here to help.
Authors: Alex Ramsey (Partner) and Harriet Adcock (Graduate)