COVID-19: Can your business get rent relief?

As part of its coronavirus response, the government has granted a six-month moratorium on evictions and is encouraging landlords to grant rent relief.

Update - May 12 2020

The government has announced a range of measures to provide assistance for renters. Evictions have been put on hold for six months for commercial and residential tenants in financial distress, who are unable to meet their commitments due to the impact of the coronavirus.The National Cabinet agreed a set of principles to guide negotiations between tenants and landlords in March and followed up with a mandatory code for SME tenants in April.

Rent relief for SMEs

The SME scheme requires landlords to reduce rents in proportion with the decline in trade for SMEs with turnover of $50 million or less that are eligible for the JobKeeper Program, i.e. their turnover has fallen by 30% or if they are ACNC registered 15%.

At least 50 per cent of the reduction must be a waiver, with the rest allowed as deferrals over the balance of the lease and for at least two years. The tenant will also have the right to extend the lease by the length of the rent reduced period to give it time to restore its business on the other side of the crisis.

Under the National Cabinet Mandatory Code of Conduct a common set of 14 principles applies to SME commercial leasing. These include:

• The binding code will cover small businesses with less than $50 million turnover, where turnover has fallen by more than 30%
• Landlords must not terminate leases for non-payment of rent during the COVID-19 pandemic (or reasonable recovery period)
• No rent rises during the period of the pandemic
• Tenants must stay committed to their lease terms (subject to amendments)
• Landlords must offer reductions in rent (as waivers or deferrals) based on the tenant’s reduction in trade during COVID-19
• Benefits that owners get for their properties (e.g. reduced charges, land tax, deferred loan payments) should be passed on to the tenant (in the appropriate proportion)

With many businesses facing sharp declines in revenue due to coronavirus, the government has encouraged landlords, tenants and financiers to agree on new arrangements to provide rental relief. Rent reductions will be based on the tenant’s decline in turnover to ensure that the burden is shared between landlords and tenants.

The policy will include a mutual obligation requirement on small and medium sized businesses and not-for-profit tenants to continue to engage employees through the JobKeeper Payment where eligible, and if applicable, provide rent relief to their subtenants.

Australian Small Business and Family Enterprise Ombudsman Kate Carnell says the subject of commercial tenancies is one of the major issues that small businesses have raised with her office. “There is binding mediation (under the code of conduct), so if you can't reach agreement with your landlord, you can go to your state Small Business Commissioner, or commercial tenancy tribunal. And they can make a binding decision. This is really important…”

The rent relief measures will be implemented by State or Territory governments. Contact these agencies in the relevant state or territory for more specific information on Relief for commercial tenancies on the Business.gov.au website.

The government is also waiving rents for all its small and medium enterprises and not-for-profit tenants within its owned and leased property across Australia.

Rent relief for other organisations

The earlier set of principles agreed by National Cabinet in March apply more broadly but are not mandatory.

"Commercial tenants, landlords and financial institutions are encouraged to sit down together to find a way through to ensure that businesses can survive and be there on the other side," Prime Minister Morrison urged in a statement on March 29.

The agreed principles include:

• the reduction or waiver of rental payment for a defined period for impacted tenants;
• the ability for tenants to terminate leases and/or seek mediation or conciliation on the grounds of financial distress;
• commercial property owners should ensure that any benefits received in respect of their properties should also benefit their tenants in proportion to the economic impact caused by coronavirus;
• landlords and tenants not significantly affected by coronavirus are expected to honour their lease and rental agreements; and
• cost-sharing or deferral of losses between landlords and tenants, with Commonwealth, state and territory governments, local government and financial institutions to consider mechanisms to provide assistance.

Banks come to the party

Australian and foreign banks, along with other financial institutions operating in Australia, are expected to support landlords and tenants with appropriate flexibility as they work to implement the mandatory code.

About 170,000 business owners, including commercial landlords, have received a deferral by banks on their business loan repayments, according to an announcement made by the Australian Banking Association (ABA) on May 3.

Under the Business Relief Package, commercial landlords with loans of up to $10 million will be eligible for six months’ worth of repayment relief, by giving an undertaking to the bank that for the period of the interest capitalisation, they will not terminate leases or evict current tenants for rent arrears as a result of COVID-19.

Details of the Business Relief Package as at 28 April are available on the ABA website and businesses must contact their banks to opt in. Under the package, businesses can obtain a six-month deferral on interest for business loans and a six-month deferral on mortgage payments.

Previously banks announced they would provide six-month loan repayment deferrals for small businesses, up to loans of $3 million. Now Australian banks will expand their business support package to all businesses with loans of up to $10 million, and cover 90 per cent of commercial property owners.

Other assistance can include fees waived, loans restructured, and further credit offered to get through the pandemic. Larger companies with total business loan facilities of up to $10 million will also be able to defer business loan repayments for six months. 

Since the start of the pandemic in Australia, banks have provided more than $45 billion in new lending to Australian businesses, including nearly $8.5 billion to more than 23,000 small businesses, says ABA CEO Anna Bligh.

Under the SME Loan Guarantee Scheme, banks and other lenders are also offering small and medium sized businesses new unsecured loans which have a 50 per cent guarantee from the government.

About 98 per cent of all Australian businesses which have a loan with an Australian bank will now be covered and eligible to have their repayments deferred for six months, says Bligh.

Summary of bank measures

• The support applies to commercial landlords of properties such as local shopping centres, pubs, clubs and restaurants, who must agree not to terminate leases or evict current tenants for rent arrears due to COVID-19 in order to access support.
• The new measures are on an opt-in basis and will apply to customers who advise that their business is affected by COVID-19.
• The customer should have been current in terms of existing facilities for 90 days prior to applying for the deferral, which will involve either the term of the loan being extended or payments increased after the deferral period.
• During this period, banks have also agreed to not enforce business loans for non-financial breaches of the loan contract (such as changes in valuations).
• Interest is capitalised – meaning either the term of the loan is extended or payments are increased after the deferral period.
• Contact your bank to opt in. A fast-track approval process will provide support as soon as possible.

More information is available on the ABA website about the Small business relief plans and measures to Help commercial landlords