Commercial rent relief for SME tenants

Rent reductions for a period of six months are available to small to medium sized businesses.

Qualifying tenants will have an annual turnover below $50 million (excluding any grant or assistance given by any government regarding COVID-19) and be eligible for the JobKeeper program.

Whilst the reductions are available, they are not automatic and must be applied for by the tenant. The process for applying and negotiating is outlined below:

  1. The tenant issues a notice asking the landlord to negotiate the rent
  2. As soon as practicable, the parties must exchange information that enables them to negotiate fairly and transparently
  3. Within 30 days, the landlord must offer a rent reduction and provide for at least 50% of the reduction in the form of a waiver
  4. Any deferral must be amortised over a period of at least 2 years but no more than 3 years. No interest or any other charges may be levied by the landlord
  5. Dispute resolution is the be conducted via court proceedings or referred to the newly established Small Business Commissioner for mediation.

Once the process has commenced, the landlord must offer a rent reduction and provide for at least 50% of the rent reduction in the form of a waiver.

The rent concession is not directly linked to the reduction in turnover for the tenant’s business (it is one of several factors). The parties must consider the landlord’s financial position and benefits as a result of COVID-19.

As noted above, information needs to be exchanged mutually regarding the tenant’s qualifying criteria and the landlord’s financial position and financial impact on both parties. This includes disclosure by both parties of any grants and concessions received from any government or taxing authority or bank or financier in terms of deferred loan payments.

It should be relatively easy for tenants to undertake the process given much of the information would already be on hand to assess qualification for JobKeeper.

There is no prescribed form as yet for the notices to be given by tenants or landlords.

Any rent review that is due to occur during the period can still occur, but a landlord must not give effect to the rent increase until 1 October.

Additionally, during the period to 30 September, landlords must not take certain prescribed actions as a result of the non-payment of rental or outgoings (or the premises being closed) including: evicting the tenant or terminating the lease, charging interest on overdue rent, calling on any bank guarantee, security or personal guarantee. That ends on 1 October.

It is important for tenants to understand that unless the tenant and landlord have agreed (or had a court rule on the amount of the reduction), the current (unadjusted) rent and outgoings stand and must be paid in full. Our advice to qualifying SME tenants is to seek the rent reduction now to provide clarity on the rent amount and assist them to rebound.