Just before Easter, the National Cabinet released a new code of conduct setting out the principles for negotiations between certain tenants of commercial properties and their landlords to respond to the unique environment we currently face. The code is relevant to SMSFs in a host of different ways.Join our newsletter
Perhaps most importantly it will be mandatory for all landlords, including SMSFs, to reflect the principles it sets out in current negotiations with eligible tenants. Under the Code, these are any tenants eligible for the Government’s JobKeeper program with a turnover of less than $50 million.
Even where the tenant does not meet these specific conditions but has been affected by Covid-19, the Government has asked that landlords and tenants nonetheless follow the general principles of the code.
These principles can be summarised as follows:
- tenants and landlords should work together to share the economic impact of the Covid-19 pandemic in an appropriate way,
- this should be done by putting in place temporary measures (such as rent deferrals, rent waivers etc) to help the tenant return to normal trading as soon as possible after the end of the pandemic, and
- the negotiations should be open, honest, in good faith and appropriately balance the needs and interests of both the tenant and landlord.
More specifically, the Code stipulates that the starting point for any negotiation is:
- landlords must not terminate leases due to non-payment of rent during the pandemic period (or reasonable subsequent recovery period),
- rent relief should be provided in a way that is proportionate to the tenant’s reduction in turnover as a result of Covid-19 (ie a 60% reduction in turnover would suggest a 60% reduction in rent),
- at least half the relief should come in the form of a complete waiver of rent, and
- the remainder of the relief could be simply a deferral of payments to a later date. Importantly, however, the payment of these deferred amounts must be spread over the remaining lease term or 24 months (whichever is longer).
This is extremely valuable for SMSFs dealing with related party tenants. It means they have some clear guidance as to what would be reasonable relief under the current circumstances.
Not all SMSF landlords will be subject to the Code of Conduct (eg if their tenant is not an eligible business for the purpose of JobKeeper Payments). In our view, they could still use the Code of Conduct as a guide for assessing the rent relief to be offered to a tenant (related party or otherwise). However, if the tenant is a related party, it will be important to ensure the relief was necessary (eg the tenant was suffering financial stress or hardship as a result of Covid-19).
Where to find further information?
Stay up to date on Covid-19 superannuation related issues and access the latest support with our Covid-19 Resources pack. Available now as part of the Heffron Super Companion.