COVID-19 SME LEASE CONCESSIONS

On 7 April 2020 the National Cabinet released a Code setting out a list of principles to apply to commercial leases during the COVID-19 period. The objective of the Code is to share, in a proportionate, measured manner, the financial risk and cashflow impact during the COVID-19 period, whilst seeking to appropriately balance the interests of tenants and landlords. 

It is intended that landlords will agree tailored, bespoke and appropriate temporary arrangements for each SME tenant, taking into account their particular circumstances on a case-by-case basis. The Code sets out 14 leasing principles and applies to all tenancies that are suffering financial stress or hardship as a result of the COVID-19 pandemic as defined by their eligibility for the Commonwealth Government’s JobKeeper programme, with an annual turnover of up to $50 million. 

The $50 million annual turnover threshold will be applied in respect of franchises at the franchisee level. Typically a business will meet the test of suffering financial stress or hardship where its revenue is reduced by more than 30 per cent relative to a comparable period a year ago (of at least a month).

The Code sets out principles around:

• Landlords not terminating leases, nor making a call under security bonds, personal guarantees and bank guarantees, for the non-payment of rent during the COVID-19 period and a subsequent reasonable recovery period.

• Rent reductions in the form of waivers and deferrals and provides guidelines as to how these should be calculated and the period over which deferred payments should be paid.

• Landlords passing on reductions in statutory charges (eg land tax and council rates) and the benefits of deferred loan payments that they may obtain from their financiers.

• Whether landlords should, where appropriate, seek to waive recovery of any other expense (or outgoing) payable by a tenant, under lease terms, during the period the tenant is not able to trade.

• The tenant being provided with an opportunity to extend its lease for an equivalent period of any rent waiver or deferral period.

Because all businesses and leases are different, as are their commercial arrangements, it has not been possible for the National Cabinet to mandate a fixed outcome in any given arrangement. As a result, tenants may be subject to variable outcomes given that in most situations the landlord retains a stronger negotiating position than the tenant. As a result, East Lawyers believe that we can assist SME tenants in the following ways:

1. we will review the existing lease terms to ensure that you are aware of the relevant terms of the lease not immediately apparent to the untrained eye

2. by discussing with you, your options in relation to rent waivers, rent deferrals and variations to lease terms

3. assist you in maximising your share of the benefits of reductions in statutory charges available to the landlord

4. bridge the information disadvantage that you suffer vis-à-vis the landlord ie you are unaware of offers that the landlord is making to other tenants and the arrangements other landlords are offering their tenants

5. assist you in preparing a professional submission to your landlord utilising a template that we have prepared

6. benefit from the increased bargaining power where East Lawyers acts for more than one tenant in a commercial complex

7. negotiating the lease revisions on your behalf with the landlord.