The financial impact on Landlords of COVID-19

We have heard so much about how tenants are to be supported throughout the COVID-19 pandemic by their landlords, with mandatory rent concessions, a moratorium on evictions and other support measures required under the SME Leasing Code of Conduct. In fact, the Code of Conduct is primarily to support tenants financially affected by the pandemic, and it does little to support landlords who may also be financially affected due to their struggling tenants.

How are landlords fairing? They too are running businesses of leasing their properties and are also finding themselves in financial distress due to tenants not being able to pay their rent.

Small Business Relief may be available

Thankfully, the Australian Banking Association (ABA) has confirmed that it will extend the six month deferral of loan repayments (part of its Small Business Relief package) to 30,000 more businesses across the country, meaning that this support now extends to 98% of all businesses with a loan from an Australian bank.

Mandatory Leasing Code of Conduct impact on Landlords

The mandatory Leasing Code of Conduct requires that landlords must engage in rent reduction negotiations with tenants where the tenants are eligible under the terms of the Code.

A tenant who is eligible for the JobKeeper scheme is automatically considered to be in financial distress and eligible under the Code. But this loss of rent potentially puts the landlord in financial distress too, and possibly also eligible for the JobKeeper scheme itself.

Loan repayment deferrals

Businesses with total business loan facilities of up to $10 million (up from the previous threshold of $3 million) will now be able to defer repayments for loans attached to their business for six months. These businesses are generally much larger and employ a greater number of people.

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).

What conditions apply?

The new measures will apply in all sectors of the economy, and on an opt-in basis, under the conditions that:

• For commercial property landlords, they provide an undertaking to the bank that for the period of the interest capitalisation, they will not terminate leases or evict current tenants for rent arrears as a result of COVID19;
• the customer has advised that its business is affected by COVID-19;
• the customer was current in terms of existing facilities 90 days prior to applying; and
• interest is capitalised – meaning either the term of the loan is extended, or payments are increased after the deferral period.

What type of businesses are included?

The type of businesses this applies to includes commercial landlords of properties such as local shopping centres, pubs and restaurants as well as industrial factories and units who must agree not to terminate leases or evict current tenants for rent arrears due to COVID19 in order to access support.

According to the ABA, these measures will help protect many more thousands of small businesses from being evicted if they are struggling to pay the rent as it covers approximately 90% of commercial property owners who have loans with an Australian bank.   From landlords’ point of view, being able to access a 6-month deferral of loan payments, will be a lifesaver for many of those commercial property owners.

 

If you are a landlord and need advice on your circumstances, we can help you.

 

Please note that this article has been prepared by Bell Legal Group, for information purposes only. It is not legal advice nor should it be relied upon as such.

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