COVID-19 - Commercial and Residential tenancies
On Sunday, 29 March 2020 the Prime Minister's office made the following announcement after the National Cabinet meeting:
Commercial and residential tenancies
As part of its work on helping businesses hibernate, the National Cabinet agreed that short-term intervention is needed for commercial tenancies. Work on this has begun, however, there is more to do, including for residential tenancies.
The National Cabinet has agreed to a moratorium on evictions over the next six months for commercial and residential tenancies in financial distress who are unable to meet their commitments due to the impact of 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. As part of this, the National Cabinet agreed to a common set of principles, endorsed by Treasurer, to underpin and govern intervention to aid commercial tenancies as follows:
- A short term, temporary moratorium on eviction for non-payment of rent to be applied across commercial tenancies impacted by severe rental distress due to Coronavirus;
- Tenants and landlords are encouraged to agree on rent relief or temporary amendments to the lease;
- 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 baused 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.
It is important that you fully understand your rights and obligations as a landlord or tenant. Please note that each situation is different and specific advice must be sought with regards to the particular facts at hand.
Can a tenant terminate the lease or avoid performance in reliance of ‘Force Majeure’?
Force majeure is a legal concept whereby an unforeseen circumstance prevents the tenant from fulfilling its obligations under the lease. A force majeure clause permits a party to either terminate or suspend their obligations under the lease, provided the trigger event is out of the control of the parties (e.g. a natural disaster or in this case Covid-19). A tenant may be entitled to terminate the lease or avoid performance if the lease contains a force majeure (or equivalent) clause, however this type of provision is not contained in most commercial leases. Accordingly, under most leases your tenant cannot rely upon Covid-19 as a force majeure event to allow them to stop paying rent.
Does a landlord have to grant rent relief?
You are not required to grant any form of rent relief to a tenant. Practically, however, rent relief may be in the interest of maintaining an ongoing relationship with the tenant once business is back to normal.
How should rent relief proposals be documented?
Letters signed by both parties could be utilised, however, the best course of action is for a short deed to be drafted, especially where a more complex rent relief option is contemplated.
What should you do now?
Landlords and tenants should be across the latest requirements by the government and any other applicable authority to ensure that they are complying with their respective obligations, whether it be in relation to occupant capacity or sanitising measures. Not only is it important to comply with the government’s requirements, most leases require tenants to comply with any applicable laws, requirements, regulations or orders made by an applicable authority. Failure to comply with the government (whether federal or state) can form the basis of a breach of the lease.
Please note that this information may change on a daily or weekly basis, based on future Government announcements and is subject to change.
Please contact your lawyer or solicitor for further assistance or information.
The Money Edge | Bundaberg