SME Relief: Rent Reductions and Deferrals
A new ‘good faith’ code of conduct for tenants and landlords has just been announced by the Prime Minister in an effort to provide SME relief to small and medium-sized enterprises affected by the coronavirus.
Under the new code, businesses affected by the coronavirus economic downturn will be exempted from paying part of their rent and given at least two years to catch up on any deferred payments.
How does the Rental Relief work?
Rent reduction and deferrals are to be negotiated with any decision made binding on both parties. Any reduction will be proportionate to the loss the business has suffered which must make up no less than 50 per cent of the proportion of the tenant’s revenue lost. This means where a tenant has suffered a 30 per cent fall in revenue, they will be entitled to at least a 15 per cent reduction with the remainder able to be deferred.
Landlords may request deferred rent be paid pack over the term of the lease for a period of no less than 24 months. They are not permitted to demand repayment in the recovery phase where it threatens the feasibility of the business.
The code will be legislated and regulated in each state and territory.
What Businesses will be Eligible?
Under the code, a business will be eligible for this rental relief if it meets the following criteria:
- Has an annual turnover of less than $50 million
- It has suffered at least a 30 per cent economic loss from coronavirus
- Received JobKeeper wage subsidies
For franchisees and retail corporate groups, the $50 million threshold will be applied at the franchisee level or group level rather than at individual store.
What happens if Landlord do not abide by the Code?
If landlords refuse to abide by this new code and negotiate a reduction, commercial tenants will have the option to break their lease.
Further, landlords will risk missing out on concessions issued by state and local governments as well as banks for rate relief and loan repayment holidays if they do not abide by the code.
For now, National Cabinet has largely left residential tenancy relief to the states apart from the six-month moratorium on evictions. This ban only relates to people who cannot pay their rent because they have lost their income due to the coronavirus pandemic and does not stop landlords handing tenants ‘no grounds’ evictions.