Publications - COVID-19
The Latest on Commercial Tenancies
31 March 2020
There have been several developments culminating in the lease moratorium and commercial loan support measures announced yesterday.
Last week, the COVID-19 Legislation Amendment (Emergency Measures) Bill 2020 (NSW) (Bill) was passed last night and received royal assent. This is NSW state legislation.
The Bill provides that regulations MAY provide for certain matters for the purpose of responding to the public health emergency caused by COVID-19 pandemic as follows:
- prohibiting the recovery of possession of premises by a landlord in particular circumstances;
- prohibiting the termination of a lease by a landlord in particular circumstances;
- regulating or preventing a landlord from exercising or enforcing another right in particular circumstances;
- exempting a tenant, or a class of tenants, from the operation of the RLA or any agreement relating to the leasing of premises.
A couple of important points.
- At the time no regulations had been passed. Either enabling legislation or regulations are now imminent.
- Regulations made under the above provision expire 6 months after the regulation commences, unless Parliament resolves an earlier expiry.
- Part 11 applies not only to the RLA but to “any other Act relating to the leasing of premises or land for commercial purposes”. It is therefore possible that the amendment results in a regulation being made under legislation which governs commercial leases or leases not caught by the RLA.
On Sunday 29 March 2020, the Prime Minister announced that the National Cabinet had agreed that short term intervention is needed for commercial tenancies.
The National Cabinet's expressed desired outcome is that, at the other side of this COVD-19 crisis, a landlord has a tenant in the premises who is paying rent and the tenant has a viable business.
The key principles agreed by the National Cabinet are as follows.
- A six month, temporary moratorium on the eviction of commercial and residential tenants for non payment of rent is to apply to tenancies impacted by rental distress due to the COVID-19 crisis. It appears that “commercial” tenants includes Retail, office and industrial tenants.
- Commercial tenants and landlords are encouraged to sit down together and talk to each other, to find a way through to the other side of this COVID-19 crisis. This includes to agree on rent relief (rent waiver or reductions) for a defined period of time for tenants impacted by the COVID-19 crisis.
- Tenants should be able to terminate leases or seek mediation and/or conciliation on the grounds of financial distress.
- Commercial landlords should ensure any benefits received in respect of their properties are passed onto tenants in proportion to the economic impact caused by the COVID-19 crisis.
- Landlords and tenants not significantly impacted by the COVID-19 crisis are expected to honour their lease and rental arrangements.
- There is to be a cost sharing or deferral of losses between landlords and tenants - with Commonwealth, State and Territory governments, Local governments and financial institutions to consider mechanisms to provide assistance.
The key principles need far more detail from State and Territory Treasurers, who have been given carriage of this issue. The Property Council of Australia has flagged its early concerns with some of the key principles.
The Property Council of Australia has indicated that the role of the financial sector is crucial in these arrangements and more detail from the ABA for the banking sector has now been announced.
A copy of the Prime Minister's statement delivered in the evening of Sunday 29 March 2020 is available here.
On 30 March 2020 this was put into effect, with the Prime Minister announcing that the National Cabinet had agreed to the moratorium on evictions over the next six months for commercial and residential tenancies in financial distress who are unable to meet their commitments due to the impact of coronavirus.
Also on 30 March 2020, the Australian Banking Association (ABA) announced proposed measures by banks to support commercial landlords who assist tenants during this COVID-19 pandemic. The two key measures (subject to meeting the conditions below) are:
- businesses with total business loan facilities of up to $10 million (increased from the $3 million small business threshold) to be able to defer loan repayments for six months (facilities above $10 million will be considered on a case by case basis); and
- banks will not enforce business loans for non-financial breaches of the loan contract (such as changes in valuations).
These new measures of relief will apply to all sectors of the economy, on an opt-in basis, provided that:
- for commercial property landlords, they provide 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 COVID19;
- the customer has advised that its business is affected by COVID-19;
- the customer was current in terms of existing facilities 90 days prior to applying for this relief; and
- interest is capitalised – that is, the term of the loan is extended by the deferral period of payments are increased after the deferral period.
These proposed measures have not yet been implemented, and are subject to authorisation from the Australian Competition and Consumer Commission (ACCC).
The National Cabinet Statement is available here and the statement from the ABA is available here.
Commercial landlords should consider whether they are eligible for the above relief and whether to apply for such relief, if and when it becomes available (which is currently subject to approval from the ACCC). A good starting point for commercial landlords is to review current banking facilities, to ascertain eligibility.
The National Cabinet is meeting again in relation to this, and we will provide further updates.
If you would like advice in relation to your own personal circumstances, please contact us.