COVID-19 Rent Relief: what can you ask from your landlord?

WHAT YOU NEED TO KNOW

22 APRIL 2020

There are continuing developments regarding the availability of rent relief packages for tenants affected by the COVID-19 pandemic (COVID-19).

Like most of the measures introduced recently by States and Territories, things are moving fast and it can be confusing to understand the detail and application of the mandatory code of conduct (Code) as it relates to small and medium businesses (i.e. with turnovers less than $50M) (SMEs).

In an emergency sitting tomorrow, the Victorian State Parliament is expected to pass new legislation that will hopefully bring more clarity on entitlements under the Code. We will provide an update once we know more.

In the meantime, here is what we are currently telling our SME tenant clients to do in anticipation of the new laws:

• Confirm your eligibility for the JobKeeper programme (JobKeeper) and, if eligible, enrol in it as soon as possible.
   
• If an SME tenant is an ‘eligible business’ for the purposes of JobKeeper, then it will be eligible for rent relief under the Code.
   
• Determine the fall in turnover percentage used for the purposes of JobKeeper (noting that eligible SMEs must have experienced a reduction in turnover of at least 30% to qualify for the programme).
   
• A SME tenant is eligible for a reduction in the amounts usually payable under its lease in proportion to the reduction in turnover used for JobKeeper. So, if the SME tenant has experienced a reduction in turnover of 50%, then – on the face of it – the SME tenant is eligible for a 50% reduction in the amounts usually payable under its lease for the duration of COVID-19 (and any subsequent recovery period) (rent relief package).
   
• Think about the nature of relief that is appropriate and necessary to your circumstances. Not all tenancies or circumstances are the same. That said, the Code prescribes that any rent relief package negotiated with a landlord must be comprised of the following components:

A rent waiver of at least 50% of the total rent relief package (i.e. never to be paid by the tenant); and

A rent deferral for the balance of the total rent relief package (i.e. these amounts will be payable on a deferred basis over a minimum 24-month period (commencing on the earlier of the end of the lease or the end of COVID-19,  unless otherwise agreed between the parties).

• Prepare relevant financial information to substantiate any decline in turnover and your eligibility for JobKeeper.
   
• Put your landlord on notice that you will be applying for rent relief. It may take days, or even weeks to reach agreement on terms, so the sooner the better. We suggest something like this will suffice:

Dear [Landlord],

Like almost all businesses, we have been impacted adversely by COVID-19 and have therefore experienced a significant reduction in our turnover. 

We anticipate that we will be an 'eligible business' for the purposes of the JobKeeper programme and, therefore, eligible for rent and other relief under the mandatory code of conduct affecting commercial leases.

We will be writing to you in the coming days with further details on a proposal with respect to rent and other relief prescribed by the code. 

Please accept this email as confirmation of our intention to seek rent relief.

We are keen to reach agreement on a rent relief package as soon as possible in the interests of certainty to both parties before [insert due date for next rental instalment e.g. 1 May 2020] and the payment of any future rental instalments.

Regards,
[Tenant]

• For our Victorian based SME clients, wait until the legislation is passed tomorrow before doing anything definitive - that is, beyond sending a message to your landlord of the kind referred to above.
   
• Seek professional advice. This is a complicated and evolving area of the law. We are already working with several tenants in preliminary negotiations with landlords and – despite the intended sentiment of the Code – not all landlords have been necessarily accommodating. Landlords are being affected by COVID-19 too, so we expect that there will be some difficult conversations over the next little while as to how the economic detriment is to be shared between the parties. What we do know, however, is that the Code and any supporting legislation will bring landlords to the negotiating table.

We are here if you need us and will provide you with further updates as, and when, we know more.

The content of this article is current at the date of publication and is intended for reference purposes only. It does not constitute legal advice and should not be relied upon as such. You should always seek legal advice about your specific circumstances before dealing with any of the matters contemplated by this article.