Aspen's View: Commercial Property Code of Conduct

The Property Code of Conduct is to be introduced through legislation, or regulation by state and territory governments. A copy of the Code is attached to the statement issued by National Cabinet and is available here.

Here are some of the key elements, and our thoughts

1. The Code sets a formula for SME rent relief 
   Aspen's Comment: there are still many areas that need clarification.
2. Banks will be required to support real estate debt covenants 
   Aspen's Comment: no write-offs of interest and no debt reduction, just deferrals
3. Preventing lease terminations has been taken off the table 
   Aspen's Comment: a clear win for landlords.
4. There are still no details on tax support, eyes on states and territories
   Aspen's Comment: announcements should be forthcoming
5. Under the Code, landlords must not terminate the lease or draw on a tenant's security. Similarly, tenants must honour their lease 
   Aspen's Comment: this is a good outcome for all.

Food for Thought

The new Property Code of Conduct for Commercial Landlords has now been released and whilst everyone acknowledges that tenants need assistance, there also appears to be a consensus that if we remove our tenant and landlord hats, the fact is that commercial landlords have been treated unfairly.

No fair-minded landlord would dispute that deferred payments without penalty interest and a reasonable period to catch up on the deferred amounts is fair and reasonable. However, the introduction of waivers is not what was put forward by the property bodies as being a fair and reasonable addition.

During a property market crash you did not see a tenant approaching a landlord offering to increase rent to compensate the landlord for their losses, and during a property market boom landlord's did not offer to share their upside with their tenants. The fact is that the landlord takes the risk of being a property investor, and the tenant takes the risk of operating a business.

We also need to consider that banks have not been forced to waive interest or write off principal, all they are doing is deferring. 

Why should landlords be asked to do any more than a bank is asked to do and be forced to waive rent when they never chose to be in businesses? They are just landlords. If they do not employ people, they are not even entitled to many of the Government incentives.

Also while some tenants may have had a decrease in revenue, wages have dropped and margins may have increased, so the impact on their bottom line is not as large as the drop in revenue may suggest.

General Observations

1. There are still many matters that require further clarification. Whether you are a tenant or a landlord you should fully understand you rights and obtain advice before you agree to any variations. Any variations should be formally documented to ensure that tenants and landlords are not exposed.
2. The right to a waiver or a deferral is not automatic and there needs to be cooperation on both sides, and information such as but not limited to the following needs to be requested/ provided to enable fair and equitable decisions to be made*:
   1. Is the tenant's turnover less than $50 million?
   2. Is the tenant participating in the Jobkeeper program?
3. The Property Council is continuing to work with governments on issues including:
   1. Exemptions for small owners from the Code and the need to recognise arrangements that have already been put in place with tenants.
   2. Land tax or other relief is so important for both commercial landlords and tenants.

Conclusion

This is a difficult and testing time for tenants and landlords. Patience and goodwill is required by both parties, as further updates will be forthcoming which may assist in clarifying positions of both tenants and landlords.

 

*(Refer definition (1 & 2) of the code Financial Stress or Hardship & also Sufficient and accurate information as well as other definitions)