Governments have recently moved to clarify procedures for negotiating residential and commercial tenancies during the COVID-19 shutdown, but property managers and lawyers say there are still problems for all parties.
The ACT Government, for example, recently released new information to clarify changes to residential tenancies disrupted by the COVID-19 lockdown.
The changes include encouraging landlords to reduce rent by providing them with financial support, encouraging landlords to stop collecting rent, stopping landlords from evicting people who cannot afford to pay their rent, and preventing ‘blacklisting’ by real estate agents.
Many businesses are asking themselves hard questions about how to cope with the COVID-19 crisis, and commercial rental agreements are top of the list. So, what are your rights and where do the conversations between tenants and landlords begin? Archie Tsirimokos from Meyer Vandenberg Lawyers and Hannah Gill from Independent have the answers.
Posted by The RiotACT on Thursday, April 23, 2020
Independent Managing Director of Property Management Hannah Gill welcomes the government’s clarification on the changes but says there are still some grey areas.
“When tenants apply for hardship relief, we are asking them to show payslips or a letter from their employer, but we have no way of knowing if they are also receiving assistance through JobKeeper or JobSeeker. If the tenant is getting assistance and they can contribute more towards their rent payments, it will help the situation for all parties.
“Tenants need to understand, if the landlord agrees to a rental deferment, the rent is not waived, it is a debt that will accumulate and become due in six months’ time.
“Early on there was a lot of confusion, and there was a wide belief that you didn’t have to pay rent for six months because you couldn’t be evicted. Most people now understand that there are still obligations to pay and if they can’t, they should speak to their landlord or property manager.”
Ms Gill says negotiating with tenants and landlords has been a huge amount of work for property managers.
“Every situation is different. Some landlords are hurting, too. They may have a mortgage on their property or may have lost income because of the COVID-19 crisis.”
Property managers are caught between representing the interests of landlords and tenants while being legally unable to direct them to the options provided by the government.
“ASIC has made it very clear that property managers can’t be seen to be providing financial advice. Directing landlords to some of the options available may be viewed as financial advice so at this stage we are being cautious and directing landlords to seek advice from their accountants or other financial adviser.
“People are trying to achieve good outcomes. In the last fortnight there has been real engagement and collaboration with government and the industry which is really pleasing to see,” Ms Gill said.
Meyer Vandenberg Chair Archie Tsirimokos says there is also uncertainty for commercial tenancies.
The federal government has directed landlords to waive or defer rent for tenants who can demonstrate financial distress due to coronavirus. Businesses that are eligible for the JobKeeper payment and have a turnover of $50 million or less would also be considered eligible for protection under the National Cabinet Mandatory Code of Conduct covering commercial leasing.
The problem, according to Mr Tsirimokos, is that it’s not clear to which leases the new code will apply. What happens to tenancies that do not meet the JobKeeper benchmarks?
“Early on, the Prime Minister encouraged everyone to work it out. Many landlords saw the value in negotiating to ensure they had a tenant at the end of all this but the federal government has no control over leases, it is up to the states and territories to enact their own legislation. This creates problems for tenants, where the code does not apply, particularly for those who are not eligible for JobKeeper,” Mr Tsirimokos said.
Mr Tsirimokos says once enacted, the code should provide some clarity and comfort for those tenants with landlords that are refusing to negotiate. They will need to come to the table and offer what’s effectively a three-month deferral and a three-month waiver if the pandemic lasts for six months. If they can’t work it out they will have to appoint a mediator to assist them to reach a resolution and it is unclear how successful that will be.
“There are some pragmatic landlords out there at the moment offering a larger rent-free period in exchange for a longer lease but we know for some businesses, the accumulation of rent, as well as the loss of trade as we come out of this, is just not going to be enough to get them through. We will see some just not reopen. Unfortunately, those businesses will still be liable to pay rent for the balance of their lease.
“It is tough when you think about it. Many businesses have suffered a loss of trade in their peak summer period through the bushfires, then the storms and now coronavirus. There are going to be businesses that will fall through the cracks. The best advice I can give is to be realistic and commercial, and keep lines of communication open.”