Four retail associations have agreed on a common set of principles regarding commercial leases following the National Cabinet's announcement of a moratorium on eviction for non-payment of rent.
The National Retail Association (NRA), Australian Retailers Association (ARA), the Pharmacy Guild of Australia (PGA) and the Shopping Centre Council of Australia (SCCA) have agreed on seven principles to help guide the states and territories in their dealings with commercial leases.
NRA CEO Dominique Lamb said that it was important to discuss commercial lease agreements further to ensure that retailers and landlords could work together effectively.
"We sat down immediately after the Prime Minister’s announcement to come together in good faith and continue our ongoing discussions to ensure landlords and tenants are working together," she said.
ARA CEO, Russel Zimmerman added that the retail industry has a history of working well together.
"Our industry has a track record of working together, including on challenging issues, and this is about working together and assisting policy makers in the next phase given our group’s longstanding engagement on retail leasing issues," he said.
The principles are based on the Prime Ministers directives and cover landlord and tenant cooperation, moratoriums on non-payment of rent and lease termination.
SCCA executive director, Angus Nardi said that the guidelines aim to create a balanced outcome for both tenants and landlords.
"Shopping centre owners and retailers have a mutual interest in business continuity and it’s positive to have a unanimous and timely approach to tackle the pressing challenges we all confront in the current environment in a way that is fair and balanced to everyone," he said.
The agreed principles were sent to all states and territories on March 31.
AGREED LEASING PRINCIPLES
National Cabinet Principles
1. 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.
ARA, NRA, PGA, SCCA: Agreed Leasing Principles
• The SCCA has already agreed to non-termination for non-payment of rent for SMEs.
• We support this principle and would be keen to help develop it further.
2. Tenants and landlords are encouraged to agree on rent relief or temporary amendments to leases.
ARA, NRA, PGA, SCCA: Agreed Leasing Principles
• Tenants and landlords are encouraged to agree on temporary rent assistance.
• This would need to be considered on a case-by-case basis.
• Tenants would need to provide relevant financial data and other business information to heighten the lessor’s understanding of the retailer’s capacity to pay during the affected period.
3. The reduction or waiver of rental payment for a defined period for impacted tenants.
ARA, NRA, PGA, SCCA: Agreed Leasing Principles
• Rent assistance (including in the form of rent deferral) would be for a defined period, with a focus on non-essential SME tenants, on case-by-case basis, facing financial hardship as a result of COVID-19.
• Tenants would need to provide relevant financial data and other business information to heighten the lessor’s understanding of the retailer’s capacity to pay during the affected period.
• Financial assistance could be based on the overall financial capacity of the retailer (in the context of its corporate group – i.e. the related bodies corporate test).
4. The ability for tenants to terminate leases and/or seek mediation or conciliation on the grounds of financial distress.
ARA, NRA, PGA, SCCA: Agreed Leasing Principles
• Termination as proposed is not supported, and we believe should not be progressed.
• Principles 2 and 3 are considered more balanced and important for landlords and tenants to continue working together.
• We support tenants being able to seek mediation from Small Business Commissioners on the grounds of financial stress as a result of COVID-19, with appropriate processes put in place, and to work together in good faith to reach a commercial outcome which ensures retailers resume trade and become financially viable within a defined recovery period.
• A unilateral termination right isn’t balanced, given a landlord’s inability to terminate for non-payment of rent, and is not linked to the obligation on both the lessor and the lessee to work together during the recovery period.
• While other principles apply to the short-term, this principle allows an entire lease, which may run for years beyond COVID-19, to be terminated. This does not encourage retailers to work with landlords and financial institutions to formulate a recovery plan.
• It is unclear what “financial distress” specifically applies to, and what financial hurdles would apply before a retailer could exercise this right.
5. Commercial property owners should ensure any benefits received in respect of their properties should also benefit their tenants in proportion to the economic impact caused by COVID-19.
ARA, NRA, PGA, SCCA: Agreed Leasing Principles
• We believe governments should reduce statutory charges such as land tax and council rates, which will be passed on to give relief to tenants during this period.
6. Landlords and tenants not significantly affected by coronavirus are expected to honour their lease and rental agreements.
ARA, NRA, PGA, SCCA: Agreed Leasing Principles
• Agreed, as per the terms of lease agreements. All parties should comply with existing leases, subject to the principles above.
7. 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.
ARA, NRA, PGA, SCCA: Agreed Leasing Principles
• It is unclear to the parties what this means; however, we have advocated for and would support government assistance in relation to rent relief.