Landlords must discount rent for small businesses under new code

Landlords are legally bound to work out with their financially distressed commercial tenants a reduced rent in the form of a waiver and deferred rent.

The measures, set down in a new code for commercial tenancies, aim to ensure small to medium business tenants can emerge at the other side of the coronavirus crisis still in their premises, helping the economy to bounce back after the crisis has ended.

It only applies to landlords and tenants who have applied for the JobKeeper payment and who have a turnover of $50 million or less.

If landlords don't negotiate a reduced rent and abide by the code, tenants have the option to break the lease. Also unco-operative landlords could lose access to concessions provided by local councils, state governments and banks.

"This preserves the lease, it preserves the relationship, it keeps the tenant in the property," Prime Minister Scott Morrison said in announcing the new code of conduct on April 7.

"Landlords must not terminate the lease, and tenants must honour the lease."

Under the code, landlords will have to give tenants reduced proportional rent, based on how badly their business has been hit by the coronavirus.

This could take the form of a waiver to account for at least 50% of 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 waivers will have to account for at least 50% of the reduction in business.

Deferrals can be put off but must be spread over the remaining time on a lease and for no less than 12 months.

That means that if a tenant had three months remaining on a lease, they would still have at least a year to make any deferred rent payment.

The arrangements will be overseen by binding mediation and a mandatory code will be rolled out in each state and territory.

Support for landlords and tenants must be provided by Australian and foreign banks as well as other financial institutions with what the government describes as "appropriate flexibility".

Retailers are in favour of the code, according to a joint statement put out by the Australian Retailers Association which includes the National Retail Association, Pharmacy Guild of Australia, and Shopping Centre Council of Australia.

"The model announced by the prime minister today is sensible and proportionate. It will ensure - to the greatest degree possible - that businesses who suffer a major downturn have the best chance of surviving," explains Dominique Lamb, CEO of the National Retail Association.

"And that is good for both tenants and landlords. Just as we want to see businesses survive to keep employing their staff, property owners will also want to see the retail sector survive," says Lamb.

In the meantime, residential tenants and landlords will have to wait to hear from state and territory governments about any rent relief measures.

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