Latest Updates for Commercial Tenants and Landowners

Overview:

The Federal Government recently unveiled a mandatory code of conduct for commercial leases designed to provide increased support and protection for business tenants facing financial distress as a result of the coronavirus.
Photo Credit: Bahudhara, Wikimedia Commons

Rent relief has been a hot topic in recent weeks as many businesses increasingly feel the pinch of the virus. In late March, the Prime Minister took the first steps to provide additional security for tenants by announcing a six-month moratorium on evictions, at the time noting that tenants and landlords should sit down and work together to come up with an arrangement to get through this period.

The latest announcement of a mandatory code of conduct effectively extends and legislates these earlier measures by ensuring that eligible commercial tenants facing financial distress will receive rent reductions in the form of either waivers or deferrals to assist them in riding out the pandemic.

How does it work?

The mandatory code of conduct is to be legislated by each State and Territory and will bind both landlords and tenants; however, it is up to the two parties to determine how the code is implemented in regard to their lease agreement. This process will be overseen, where necessary, by binding mediation that is administered by the States and Territories.

Importantly, with regard to rent reductions, commercial tenants will need to have an annual turnover of less than $50 million and already qualify for the JobKeeper Payment program in order to be eligible for deferrals or waivers.

The code of conduct also contains a raft of other measures, including:

• stopping landlords from terminating leases;
• not allowing landlords to draw on their tenant’s security;
• ensuring landlords reduce their rent in-line with the reduction in trade being experienced by the tenant. This reduction in rent can take the form of a waiver to account for at least 50% of the reduction in business, or a deferral of rent that must be covered over the balance of the lease term, but for no less than 12 months; and
• ensuring tenants honour their leases.

 Banks are again also being urged to come to the table to provide support for landlords during this period. More details will be revealed once legislated by the states and territories.

Update on SA’s land tax initiatives

Landlords and landowners should note the $13 million land tax relief package that was announced by the South Australian State Government in late March, which provides provisions for land tax deferrals and increases to the land tax transition fund.

Individuals and businesses with outstanding quarterly bills for the 2019-20 FY (third and fourth quarter instalments) will be able to defer these payments for 6 months. Importantly, no application is required – notices will still be issued but will contain information regarding the deferral.

The South Australian Government anticipates that the scheme will save landowners approximately $189 million over the next three years and up to 28,000 private landowners will benefit.

As part of the transition to the new land tax regime, the State Government also created an ex gratia scheme to provide relief from land tax increases due to aggregation of land.

The following table summarises the relief provided where a landowner experienced an increase in land tax above $2,500 but less than $102,500 due to the aggregation measures from 30 June 2020:

For 2020-21, the amount of the relief will be increased from 50% to 100% based on existing relief criteria guidelines. Additional relief is therefore capped at $50,000.