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What the Covid-19 shutdown is doing to Commercial Property Owners in NSW, Australia

As a result of the publication on 7th April 2020 by the Australian Government of a poorly thought out and unclear Mandatory Code of Conduct for Commercial tenancies, many Landlords are finding themselves in a diabolical position. The Code provides certain protection for tenants with a turnover of less than $50 million. These will include landlords not being able to terminate leases or draw on their tenants’ security, tenants honouring their leases, and landlords reducing rent proportionate to the trading reduction of the tenant’s business. This could take the form of a waiver to account for at least 50 per cent or proportional to the reduction in business, or deferral of rent that must be covered over the balance of the lease term, but for no less than 12 months. The Commonwealth Government have left the implementation of the law to the State Governments, as this announcement is not law, but a guideline. The major problem at this stage is that there is no compensation being provided to Landlords for offering to abate rent. The Banks will still expect to be paid, albeit maybe on a deferred basis, and insurances, power, security, cleaning & statutory levies will still need to be paid. We are waiting & hoping that the States will offer some compensation in the form of Land Tax relief or credit. Nothing has been forthcoming as of this date. There has been talk, but no action. Furthermore, we are seeing a spate of opportunistic tenants, who are still trading satisfactorily & qualify for Job Keeper assistance to help in any loss of trade, seeking rent abatement and/or reductions. Many small Landlords can simply not afford to offer rent abatement, and according to the code, they do not have to do so. All in all, this is a classic Clayton’s Code…a Code that you have when you are not having a Code. Undoubtedly, commercial & common sense will normally rule the day, especially where the tenant is reliable, but through no fault of their own, cannot trade & meet their obligations. In my view, The Commonwealth Government has acted prematurely & inadvisably by publishing their piece of confusing nonsense. It is now up to the States to make sense of the situation & offer a commercially viable solution to the mayhem unleashed upon us. Gregory May

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