Property Australia

Commercial tenancy code measures rolled out

PROPERTY AUSTRALIA April 14, 2020

State and territory governments are rolling out their responses to the commercial tenancy code of conduct announced last week by the National Cabinet. 

The National Cabinet's decision on the code has been delegated to state and territory governments for implementation in each jurisdiction. 

Governments are currently working through the detail of their response to the code, as well as outlining the kind of relief they will provide to commercial property owners in the form of land tax waivers and rebates. 

So far, New South Wales, Queensland, Victoria and Tasmania have announced their tax relief packages which are aligned to the code’s adoption in their states. 

Property Council teams around the country are engaging intensively with officials and government ministers responsible for the code in their jurisdiction, seeking a fair and balanced approach to its implementation that does not see all of the burden being shouldered by commercial property landlords.   

In New South Wales, Treasurer Dominic Perrottet has announced a $440 million package for commercial and residential landlords and tenants as part of the state’s response to the commercial tenancy code, which includes land tax waivers or rebates. 

Treasurer Perrottet said the proportionality principle outlined in the national Code – where landlords will need to offer tenants rent relief proportionate to the tenant’s decline in turnover – will be implemented in NSW for small to medium enterprise tenants. The national code also specifies that a rent waiver should make up at least 50 per cent of any rent relief. The regulations supporting this implementation in NSW are yet to be finalised.  

Landlords will be eligible for the land tax waiver or rebates if they pass the saving on to tenants in financial distress. Eligible landlords will be able to apply for a land tax concession of up to 25 per cent of their 2020 calendar year land tax liability on relevant properties. 

A further land tax deferral for any outstanding amounts for a three-month period will also be offered to landlords who claim the land tax concession. Additional funding is being provided to the Office of the Small Business Commissioner and extra staff to provide a dispute resolution service.  

Property Council NSW executive director, Jane Fitzgerald, warns of hidden challenges that need to be navigated to ensure the code works well in practice. 

“Key issues which must be clarified include ensuring the code only applies to tenants in receipt of JobKeeper who are in genuine financial distress.   

“In addition, small property companies and those with larger tenants will need protection to ensure they too survive the COVID-19 crisis,” Fitzgerald explains. 

Fitzgerald says the land tax relief included in the package is a welcome initiative that will help commercial property owners help tenants over the months ahead. 

“But we must avoid a situation where too much of the burden of delivering relief for tenants is expected to be carried by commercial property owners, which include many smaller investors and businesses themselves.  

“Similarly, larger owners with property in NSW have complex financial obligations of their own, including to offshore lenders, which must be given careful attention. There is undoubtedly a role for the banks to step up here,” Fitzgerald adds. 

The Queensland Government’s response to the code includes a $400 million land tax relief package, following weeks of Property Council advocacy for such an outcome. 

Treasurer Jackie Trad says the government will move quickly to legislate to implement protections for retail, commercial and residential tenants. 

Importantly, the government has committed to consult with industry stakeholders on the development of systems and implementation of the Commercial Leasing Code of Conduct in that state. 

Eligible landowners can apply for land tax relief from Tuesday 14 April and will be offered a 25 per cent rebate on land tax already paid for 2019/20. Land tax assessments for 30 June 2020 will be deferred by three months for eligible landowners. 

The foreign land tax surcharge will be abandoned for 2019/20. However, the surcharge will apply in 2020/21. This delay will provide an opportunity for the Queensland Government to finalise the guideline for ex gratia relief. 

The Property Council’s Queensland executive director, Chris Mountford, congratulated the government on its constructive and proactive approach. 

“Land tax is often the biggest outgoing for commercial, retail, and industrial landowners. By granting this relief, landlords will have a greater capacity to support tenants that have been adversely affected, taking pressure off their cash flow at this critical time,” Mountford said. 

“We know the circumstances that landlords and tenants are finding themselves in vary greatly. A ‘one size fits all’ approach to these challenges simply does not work.” 

Mountford says proactive discussions between landlords, tenants and their financiers are already occurring, and the state government is “stepping up” to support these discussions.  

“We also applaud the pragmatic and fair approach the Queensland Government has taken in relation to the prerequisites for land tax relief. This will provide tenants and landlords with the right incentives to keep working together,” Mountford adds.  

The Victorian Government has this morning announced a $500 million package of assistance for rent relief and mediation support for commercial and residential landlords and tenants.  

This includes a ban on evictions for six months for non-payment of rent in commercial tenancies where the business has annual turnover less than $50 million and has experienced a 30 per cent minimum reduction in turnover due to coronavirus.  

Landlords and tenants will be encouraged to agree to rental waivers and deferrals for eligible businesses. $249 million in land tax relief will be provided to landlords who are supporting their tenants.  

Commercial tenants and landlords will get access to a biding mediation process through the Victorian Small Business Commission. A new Coronavirus Relief Deputy Commissioner at the State Revenue Office will manage claims under these arrangements. 

The South Australian Parliament passed legislation last week to give effect to the ‘good faith’ leasing principles set out in the national code, and protects retail and commercial tenants from eviction if they are unable to meet lease requirements due to the impact of the pandemic.  It proscribes certain actions by landlords and includes broad mediation powers to be facilitated through the Small Business Commissioner. 

Discussions are continuing with the South Australian Treasurer on the detail of the implementation of its commercial tenancy code, including land tax relief for property owners. This includes definitions around eligibility for coverage by the code which will be addressed through regulation following further consultation. 

In Western Australia, the Government will introduce legislation to Parliament this week to implement a range of measures for commercial and residential tenancies.  

The Commercial Tenancies (COVID-19 Response) Bill 2020 will introduce a moratorium on evictions for small commercial tenancies and provide a range of other measures to offer support for tenants in response to COVID-19, including the introduction of a code of conduct for landlords and tenants. 

The Property Council’s WA executive director Sandra Brewer said the legislation needed to address the reality of the commercial property market in WA, including the challenging circumstances facing many smaller property owners.  

“We know that 95% of commercial property transactions in Western Australia are for properties valued under $5 million. This has allowed a lot of smaller landlords to invest in commercial property, but often with significant debt attached to it. We encourage the government to consider an appropriate level for a carve out to exclude small landlords from the heavy burdens of the Code”, Brewer said. 

Further announcements are expected in coming days from other state and territory governments on their approach to implementing the code. Tasmania has already announced a land tax relief package, while the ACT and NT governments have also local economic and business stimulus packages

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