Property Australia

No case for extending leasing code

PROPERTY AUSTRALIA August 25, 2020

Extending the commercial leasing code of conduct would impose an extra $4.8 billion in costs on commercial property owners and could threaten the viability of many businesses, says the Property Council.

 

  Three key takeaways:

  • Commercial landlord revenues took a $4 billion hit in the five months from April to September, according to Deloitte Access Economics analysis
  • This will rise to an estimated $8.8 billion if the code is extended to March 2021, equating to a 10% fall in annual industry revenue
  • When additional rent waivers are included, the cost is $6.8 billion over five months, rising to $14.9 billion over 11 months – a 17% fall in annual revenue.

 

The National Cabinet's mandatory code of conduct for commercial tenancies, released on 7 April, outlines a set of good faith leasing principles for negotiations between landlords and tenants.

The code applies to all tenancies with an annual turnover of up to $50 million that are eligible for the the federal government’s JobKeeper program. How the code is implemented is defined by each state and territory.

According to Property Council chief executive Ken Morrison the code was an “extraordinary intervention in extraordinary circumstances”. Extending the code beyond 30 September, would be “disproportionate”.

“The Code is unlike any government measure enacted on one sector of the economy in modern Australian history. No other advanced economies around the world have made a single sector disproportionately shoulder the cost of recovery,” Morrison says.

“No other sector of the Australian economy has faced a similar demand to waive legally incurred obligations.”

The banking sector, for instance, has offered loan deferrals to small and medium sized businesses, but not loan waivers or interest free periods.

“Commercial property owners are highly motivated to support existing tenants who are experiencing hardship and were doing this prior to the code’s implementation – we don’t need extra regulation to do this,” Morrison adds.

Vicinity Centres chief executive Grant Kelley told The Australian last week that the retail property sector was bearing a very high burden and rental relief needed to be directed to “those in most need”.

“We want to ensure that we don’t get to a point where, because we’ve perhaps been misdirecting rental relief, we put our own company at risk and under pressure,” Kelley said.

GPT’s chief executive Bob Johnston agreed. He told The Australian that “market forces should be allowed to play out and allow ourselves, the landlords and the tenants work through this together”.

Morrison says extending the code in states and territories where business has been able to reopen “poses an unacceptable burden on another section of business, with potentially damaging consequences for our economic recovery”.

Western Australia’s example is instructive. Property Council WA executive director Sandra Brewer says the “relatively low” number of disputes referred to the Small Business Commissioner and to the State Administrative Tribunal represented 0.001 per cent of WA’s commercial leases.

Brewer says the Property Council “continues to raise concerns about the negative impact of the code on business confidence and the capacity of property owners to invest and generate jobs” in her state.

Meanwhile, new rules in Victoria will give the Small Business Commission the power to force a commercial landlord to grant rent relief in proportion to business lost through the coronavirus pandemic.

Property Council executive director Cressida Wall says the extension of the code on commercial tenancies “will push many landlords to their limits or beyond”.

“Landlords cannot keep propping up the system. As the crisis goes on, we will need goodwill and action from both banks and governments to ensure that these businesses do not go under and take down the economy with them.”

Morrison says the financial impact of the code is being felt across a range of commercial property owners and investors, ranging from listed real estate investment trusts, mid-tier and private property groups, self-managed super funds (SMSFs) and ‘mum and dad’ investors.

“Extending the commercial leasing code will add billions of dollars in costs for property owners and investors with potentially serious consequences for the economy and financial system,” Morrison concludes.

Tags: ADVOCACY