covid-19-commercial-rent-relief-negotiations

The Federal Government introduced back in April 2020 the National Cabinet Mandatory Code of Conduct – SME Commercial Leasing Principles During Covid-19 (Code). The Code was intended to regulate the relationships of SMEs and their landlords during the Covid-19 pandemic. The Code sets out the mandatory minimum standards applicable when negotiating rent relief arrangement in cases where SME tenants have suffered financially due to the pandemic. The Code has since been adopted, in part, by individual states, including here in Queensland under the Retail Shop Leases and Other Commercial Leases (COVID-19 Emergency Response) Regulation 2020 (Regulations).

Under the Code and the Regulations:

  • 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, based on the reduction in the tenant’s trade until September 2020.
  • Rental waivers must constitute no less than 50% of the total reduction in rent payable.
  • 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.

What Does It Mean For SMEs?

A business that has had to cease trading due to Covid-19 and therefore has no revenue will have a waiver of 50% of the rent and a deferment of payment for the remaining 50%.

For many businesses, rent relief is vital to ensure their survival during and post Covid-19. However, the Code provided for ongoing relief whilst a business recovered from the financial impact of Covid-19, the Regulations only applied until September 2020. There is therefore some inconsistency in how the Code and the Regulations operate.

The relief provides for much needed cash to sustain the business through the current disruption and beyond. For some however, the businesses will not survive even with the minimum relief provided by the Code.

Businesses that have a significant drop in revenue typically have a larger reduction in profitability than the relief provided by the legislation. Many SMEs do not have substantial financial resources and their owners’ wages are effectively paid by their profit. These businesses may find it difficult to continue trading post-Covid-19 if they have significant deferred rent and other debts to pay.

How We Can Help

You will need to assess the potential impacts of the disruption caused by the current pandemic on future trading, and the financial position of your business. This is essential in order to plan and implement measures necessary for the survival of your business. And this is where we can help, including assisting with a business plan and helping with negotiations with your landlord and other creditors to obtain the relief required to continue trading. In a worst case scenario we can also assist with a liquidation or voluntary administration of your business. 

Contact Us For Assistance

If you require assistance in assessing your business’ financial circumstances or negotiating with your landlord or creditors for relief, get in touch with us on 1300 906 966 or send us an email at mail@cactusconsulting.com.au to arrange a free confidential initial discussion.

Posted on 30-06-20 in Business.