Letter to Member; Commercial Tenancies, Qantas Update and Membership Offer (8 April 2020)

Dear Member/Friend,

Yesterday, the Prime Minister, at a press conference, spoke about Commercial Tenancies and theoretical modeling in relation to the impact of coronavirus. The Media Statement can be found at: https://www.pm.gov.au/media/update-coronavirus-measures-070420

Any business operators with concerns about their ability to pay rent as a result of COVID-19 should read the media Statement and attached Code: “SME Commercial Leasing Principles during COVID-19’. The object of the Code is for landlords and tenants to share in a proportionate manner, the cash-flow impact and financial risk during the COVID-19 period.

COMMERCIAL TENANCIES

• The Code of Conduct will be implemented by each of the States and Territories.
• The purpose of the Code of Conduct is to impose a set of good faith leasing principles for commercial tenancies.

The Code contains a number of principles including:

• The Code applies to all (commercial) tenancies (including retail, office and industrial tenancies) that are suffering financial stress or hardship as a result of COVID-19.
• To qualify, tenants must be eligible for the Commonwealth Governments JobKeeper program and have an annual turnover of up to $50 million.
• The Code will be in place while the JobKeeper program is operational.

Some of the Overarching Principles of the Code, in brief terms, are:

• Landlords and tenants share a common interest in working together to ensure business continuity and to facilitate the resumption of normal trading activities at the end of the COVID-19 pandemic.
• Landlords and tenants will be required to discuss relevant issues, to negotiate appropriate, temporary leasing arrangements, and to work towards mutually satisfactory outcomes.
• Negotiations are to be in good faith.
• Landlords and tenants are to act in an open, honest and transparent manner, and will provide accurate information during the negotiations.
• Any agreed arrangement will take into account the impact of COVID-19 on the tenant with specific regard to its revenue, expenses and profitability.
• Parties will assist each other in their respective dealings with other stakeholders such as utility companies, government, banks and other financial institutions in order to achieve the outcomes of the Code.
• The parties are to take into account the fact that the risk of default is borne by the landlord. The landlord must not seek to permanently mitigate this risk in negotiating temporary arrangements
• Leases are to be dealt with on a case by case basis considering factors such as hardship due to COVID-19 and whether the lease has expired or is soon to expire.

The Code also sets out “Leasing Principles”, some of which are mentioned in a previous newsletter. In brief (but not including all of them) they are:

1. Landlords must not terminate leases due to non-payment of rent.
2. Tenants must remain committed to the terms of their lease. Failure to abide by substantive terms of their lease (subject to COVID-19 amendments) will forfeit any protections provided to the tenant under this Code.
3. Landlords must offer tenants proportionate reductions in rent payable in the form of waivers and deferrals of up to 100% of the amount ordinarily payable, on a case-by-case basis, based on the reduction in the tenant’s trade.
4. Rental waivers must constitute no less than 50% of the total reduction in the ordinary rent payable. The waiver should constitute a greater proportion of the total reduction in rent payable in cases where failure to do so would compromise the tenant’s capacity to fulfil their ongoing obligations under the lease agreement. It is necessary to take into account the Landlord’s financial ability to provide such additional waivers.
5. Payment of rental deferrals by the tenant must be amortised over the balance of the lease term and for a period of no less than 24 months, whichever is the greater.
6. Any reduction in statutory charges will be passed on to the tenant.
7. No fees, interest or other charges should be applied with respect to rent waived and no fees, charges or punitive interest may be charged on deferrals.
8. Landlords agree to a freeze on rent increases during the COVID-19 pandemic.
9. Landlords may not apply any prohibition or levy any penalties if tenants reduce operating hours or cease to trade due to the pandemic.

The wording of the Overarching Principles and Leasing Principles are in broad and complicated terms. What I have set out does not provide the ful detail.  If you are having difficulty with your rent, please read the Code and as appropriate contact your agent, accountant or other advisor, . keeping in mind that the principles involve the parties together resolving an economic impact of COVID-19.

MEDIATION
Where landlords and tenants cannot reach agreement on leasing arrangements as a result of COVID-19, the matter should be referred, and subjected to, applicable State and Territory retail/commercial leasing dispute resolution processes for binding mediation.

QANTAS UPDATE
It would seem that flights to Armidale during the next 6 weeks are down, but not out. As you may know, Armidale Council has advised that Qantas Link will cease its services to Armidale from 9 April 2020 until 31 May 2020, subject to changes to current restrictions.

Adam Marshall, though, has been looking at a triangulated service, being a “milk run” to a number of towns to make the flights viable and has been making representations concerning that. Barnaby Joyce has also been making representations to Qantas and to the Federal Minister for Transport. I will keep you posted on this, but in the meantime, for understandable reasons flights will cease after tomorrow until either a 'milk run' is worked out or 31 May 2020 when services are intended to resume. Changes to current restrictions of course may affect that.

CHAMBER MEMBERSHIP FEES
At its monthly meeting last night, the Chamber Committee decided that no membership fees would be charged during the COVID-19 pandemic.

There will be a category: “Special” added to the dropdown menu at the Membership section of the Website for this purpose. It was also decided that the membership fee structure is to be reviewed for the COVID-19 recovery period and beyond.

If I may say so, businesses and the wider community are to be commended for the way in which they observe social distancing. It has come at a heavy economic cost. Recovery will take some time. In the meantime, the more stringently social distancing rules are observed, the quicker we should move towards that recovery.

Best wishes,

Anthony

Anthony Fox
President
Armidale Business Chamber
afox@foxlegal.com.au
m. 0402 838 077

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