The Mandatory Code of Conduct (Code) for COVID-19 was introduced on 03 April 2020, and many states and territories have also implemented an associated Act and Regulations (COVID-19 laws).
The COVID-19 laws surrounding your lease can be confusing as the laws are ambiguous, and there is no precedent if the parties do not come to an agreement.
We have come up with the most asked questions to help you during this time of crisis.
What are the criteria to obtain rent relief?
You must:
- have a commercial lease (including retail, office and industrial);
- be an eligible business for the Commonwealth Government’s JobKeeper program;
- suffer financial stress or hardship as a result of the COVID-19 pandemic.
In Victoria, you must participate in JobKeeper, but in NSW, you only need to show if you are eligible for JobKeeper.
What is my entitlement to rent relief?
Your rent relief is based on your reduction in trade. For example, if you have a 60 per cent loss in turnover, then you will obtain, as a minimum, half being 30 per cent as a rent-free and the other half of 30 per cent as a rent deferral.
How do I show my turnover loss?
The COVID laws do not specify what documentation is required to show a turnover loss. Some landlords are asking for documents such as BAS, bank statements, EFTPOS statements, JobKeeper documents to prove your entitlement to claim the grant, and profit and loss statements. Provided you adequately show your turnover loss, with primary evidence, then this should be reasonable. It would even be arguable that a letter from your accountant is adequate, stating that they have viewed your financials and calculated your turnover percentage loss.
Can I get more than what the Code states?
Each case is unique, and rent relief is negotiable based on the circumstances of each case. Many tenants have been able to obtain complete rent-free periods during closure.
Landlords should enter into these negotiations with a view to the tenant’s business being successful on the other side of the COVID-19 pandemic.
What should I do once the landlord has agreed on my rent relief?
It is advisable to have the agreement documented in writing and signed by both parties. A written agreement, such as a lease, can only be amended in writing and signed by the parties.
If your state allows for registration of leases, we would also suggest that the agreement be documented via a Variation of Lease to provide you with added security. If the landlord sells the property during the COVID-19 pandemic period and your agreement is not registered, the purchaser is unlikely to be bound by this agreement. The purchaser may argue they had no knowledge of the agreement and are not a party to the agreement, which means they are not bound by the terms.
Can the landlord terminate my lease during the term if I do not pay any rent?
The landlord must not terminate the lease due to the non-payment of rent during the COVID-19 period (or any reasonable subsequent recovery period).
When do I need to pay the deferred rent?
If negotiated arrangements necessitate repayment, then this should occur over an extended period to avoid placing an undue financial burden on the tenant. No repayment should commence until the earlier of the COVID-19 period ends or the existing lease expiring, and taking into account a reasonable subsequent recovery period.
Will the COVID-19 Laws protect me in my new lease?
The COVID-19 laws are only in place for existing leases. New leases do not obtain the benefit of the COVID-19 laws. If you are exercising your option to extend your current lease, then this is covered, and you are protected.
For any new leases, it is recommended that you seek a new clause in the lease to ensure that both parties agree to be bound by the COVID-19 laws otherwise, you will not obtain the protection.
What happens if we do not agree?
If the parties fail to reach an agreement, then the parties may attend mediation and have a mediator decide the matter.
The best outcome is one that both parties discuss together and find a mutually agreeable position to help them be successful and maintain a good relationship going forward.
Marianna Idas is the Principal of eLease Lawyers.