small house model on hand

Update – 7 April 2020

The government has announced a scheme that will require landlords to reduce rents in proportion with the decline in trade for businesses with turnover of $50 million or less that are eligible for the jobkeeper program. At least 50 per cent of the reduction must be a waiver with the rest allowed to be deferrals over the balance of the lease and for at least two years. The tenant will also have the right to extend the lease by the length of the rent reduced period to give it time to restore its business on the other side of the crisis.

With many businesses facing sharp declines in revenue due to coronavirus, the government has encouraged landlords, tenants and financiers to agree new arrangements to provide rental relief. This is in addition to a six-month moratorium on eviction for non-payment of rent for businesses severely impacted by coronavirus.

“Commercial tenants, landlords and financial institutions are encouraged to sit down together to find a way through to ensure that businesses can survive and be there on the other side,” Prime Minister Morrison urged in a statement on March 29 following a weekend cabinet summit which discussed commercial and residential rents.

The National Cabinet has agreed a set of principles to guide the process that include:

  • the reduction or waiver of rental payment for a defined period for impacted tenants;
  • the ability for tenants to terminate leases and/or seek mediation or conciliation on the grounds of financial distress;
  • commercial property owners should ensure that any benefits received in respect of their properties should also benefit their tenants in proportion to the economic impact caused by coronavirus;
  • landlords and tenants not significantly affected by coronavirus are expected to honour their lease and rental agreements; and
  • cost-sharing or deferral of losses between landlords and tenants, with Commonwealth, state and territory governments, local government and financial institutions to consider mechanisms to provide assistance.

Banks come to the party

In an announcement made on March 30 by the Australian Banking Association (ABA), commercial landlords with loans of up to $10 million will be eligible for six months’ worth of repayment relief, on the premise they do not terminate the lease or evict any tenant who fails to pay rent due to any financial hardship caused by the coronavirus outbreak.

Previously banks announced they would provide six-month loan repayment deferrals for small businesses, up to loans of $3 million. Now Australian banks will expand their business support package to all businesses with loans of up to $10 million, says Anna Bligh, CEO of the Australian Banking Association. This will extend support to 30,000 more businesses and cover 90 per cent of commercial property owners.

About 98 per cent of all Australian businesses which have a loan with an Australian bank will now be covered and eligible to have their repayments deferred for six months, she says.

The extension of support will apply to an extra $100 billion of business loans. Combined with measures already announced, it will mean a six-month deferral of loan payments will apply to up to $250 billion worth of loans, with extra cash available to 425,000 businesses to cope with the crisis during the COVID-19 pandemic.

Commonwealth Bank, WestPac and ANZ have each released a statement saying they support the new measures.

Summary of bank measures

  • The new measures are on an opt-in basis and will apply to customers who advise that their business is affected by COVID-19.
  • The customer should have been current in terms of existing facilities for 90 days prior to applying for the deferral, which will involve either the term of the loan being extended or payments increased after the deferral period.
  • The support applies to commercial landlords of properties such as local shopping centres, pubs, clubs and restaurants, who must agree not to terminate leases or evict current tenants for rent arrears due to COVID-19 in order to access support.
  • During this period, banks have also agreed to not enforce business loans for non-financial breaches of the loan contract (such as changes in valuations).
  • Interest is capitalised – meaning either the term of the loan is extended or payments are increased after the deferral period.
  • Contact your bank to opt in. A fast-track approval process will provide support as soon as possible.