Case Studies

Commercial Tenancies – COVID-19 Tenants: Prepare To Negotiate

On 7 April the Federal Cabinet has announced a mandatory Code of Conduct (the Code) for commercial tenancies to be implemented via legislation or regulation.

We are waiting for the detail, but there are things tenants can be doing right now to prepare.

To obtain rent relief under the Code for rent write-offs and/or rent deferment, tenants will have to be ready to provide their landlord with evidence that they have experienced a reduction in their business turnover of at least 30% as a result of Covid-19. Conversely, not surprisingly, landlords will ask for the information which verifies the claim.

At a high level, that will require tenants to produce comparative financials for pre and post 1 March 2020. Some tenants might insist that any information they supply should be provided on the condition that the information is provided on a confidential basis.

The information tenants might start putting together would include, but is not limited to:

  • evidence that their business is eligible for “JobKeeper” assistance and has a turnover of less than $50 million (in which case the mandatory Code will apply)
  • a report from their accountant with evidence that the business has experienced a substantial reduction in its ability to pay rent due to the impacts of COVID-19
  • included in that report would be a statement of financial position, outlining income, expenses, assets and liabilities (ideally prepared and certified by your accountant), currently and pre-1 March 2020
  • a summary of significant secured and unsecured finance obligations and whether any repayment moratoriums have been offered by the lender;
  • other information related to the industry the business operates in which shows how circumstances have changed as a result of COVID-19 since 1 March 2020. For example, if the business is in hospitality, that should be self-explanatory
  • whether work from home arrangements have been put in place and whether staff have been adjusted to part time, stood down, made redundant or terminated and what other arrangements are currently in place for the ongoing operation of the business
  • whether they have business interruption insurance that covers the payment of rent and outgoings and if the circumstances for a claim on that insurance have been triggered.

The Code refers to rent relief being “proportionate and reasonable”.

Tenants seeking rent relief will be expected to provide financial information which supports their claims.

The more transparent and compelling the information is, the more likely their claim for rent relief will be.

Surry Partners Lawyers can help you through the process.

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This paper is a summary providing general information and is not specific legal advice.

 

For more details, please contact:

SURRY PARTNERS LAWYERS
Peter English, Director
(02) 9318 6411
peter.english@surrypartners.com.au

© Surry Partners Lawyers 2020

14 April 2020