Real Estate COVID-19 Help Desk in Australia

The Australian property market is large part of our economy, with a wide range of different direct and indirect participants in the commercial property sector. International investors, private and listed property companies, superannuation funds, and mum and dad investors have all been significantly impacted by Government imposed restrictions that have significantly reduced demand for commercial properties, and the ability of tenants to meet their lease obligations.

As many company’s have adapted to the ‘new norm’, it is expected that a softening in demand for commercial properties will continue as businesses see the benefit of operating virtually, and/or due to concerns that the Government may swiftly reintroduce social distancing measures to prevent or minimize any second wave of infections. The impacts of Covid-19 will see excess capacity in the commercial, retail, and hospitality property sectors for quite some time.

The Australian Federal Government and its State and Territory counterparts have announced a series of new regulatory, legislative and administrative changes that strengthen the country’s position moving through the crisis, with a raft of measures to protect participants in the property sector – landlords and tenants alike.

The National Cabinet (a group consisting of the Prime Minister, and the Premiers and Chief Ministers from each Australian State and Territory) announced on 7 April 2020 the Code of Conduct for Commercial Tenancies (the Code) which outlines a number of principles for landlords and tenants to consider when negotiating temporary changes to commercial leases during the Covid-19 pandemic.

Generally the Code will apply in circumstances where a commercial lease involves a tenant that has an annual revenue of up to $50 million (at a consolidated group level), and is eligible to receive the Federal Government’s Jobkeeper program (i.e. because their revenue has fallen or will likely fall by 30% of more).

The Code requires landlord and tenants to negotiate in good faith, but at a minimum imposes the following principles into the negotiations:

• the landlord cannot terminate the lease due to non-payment of rent during the pandemic period and subsequent recovery period;
• the tenant must meet the obligations of the lease (other than those amended in accordance with the Code) otherwise they may not benefit from the protections under the Code;
• the landlord must offer reductions in rent in proportion to the decline in the tenant’s revenue, with at least 50% of the reduction to be waived, with the other 50% to be repaid over time;
• the landlord must pass any savings and relief they benefit from on to the tenant;
• the landlord must not draw on tenant’s security for non-payment of rent during pandemic period and subsequent recovery period; and
• the landlord must freeze any rent increases proposed by the lease.

The Code will be legislated in each State and Territory.

Each State and Territory Government have also introduced a number of measures to support commercial landlords. Examples of such measures include waivers or reductions in certain duties and taxes.

Australia’s financial institutions have announced a number of measures to support customers during the Covid-19 pandemic period. For SME landlords these measures can include the deferral of principal repayments on commercial loans.