Commercial Property: Deferrals, Waivers Mandated by Code

Landlords must offer rent waivers and deferrals proportionate to their tenants’ decline in turnover, the prime minister has confirmed.

Details of the federal government’s mandatory code of conduct were revealed after the National Cabinet met on Tuesday.

The code imposes a set of good faith principles—including the much-discussed expectation that commercial landlords and their tenants must “share the burden” of the Covid-19 economic downturn.

Rent waivers will account for at least 50 per cent of the reduction in a tenant's business, while deferrals must be spread over the remainder of the lease but for no less than 24 months.

The code will now drop down to the states and territories for legislative implementation, and will be overseen through a binding mediation process.

The prime minister said that landlords would “forfeit their way out of a lease” should they refuse to negotiate with their tenants.

“Landlords must not terminate the lease or draw on a tenant’s security. Likewise, tenants must honour the lease.

“It preserves the lease, it preserves the relationship, it keeps the tenant in the property.”

Property Council chief executive Ken Morrison said a number of changes should be made to the code, including to protect the position of “small property companies”.

“We must avoid a situation where too much of the burden of delivering relief for tenants is expected to be carried by commercial property owners,” Morrison said.

For large owners of property, the prime minister urged the banks and offshore lenders to provide support.

No word yet on land tax or stamp duty relief for landlords from the states and territories, but Morrison said the Property Council would be lobbying for support from governments for assistance and “meaningful land tax support”.

National Retail Association chief executive Dominique Lamb said that the code gives retail businesses a shot at survival.

“The model announced by the Prime Minister today is sensible and proportionate,” Lamb said.

“And that is good for both tenants and landlords. Just as we want to see businesses survive to keep employing their staff, property owners will also want to see the retail sector survive.”

Meanwhile, more than one third of Australian businesses have already moved to renegotiate lease and rent agreements, ABS data released on Tuesday revealed.

The data on the business impacts of Covid-19 showed that almost half—47 per cent—of businesses made changes to their working arrangements, ranging from cutting staff to the introduction of remote working.