Today marks the anniversary of the decision by the National Cabinet to adopt a mandatory industry code of conduct for commercial tenancies.
While residential landlords and tenants were free to make their own mutually-beneficial rent adjustments in 2020 without a mandated code – and many did – commercial tenancies were caught in a red tape quagmire which delayed agreements and held up relief to tenants.
Some policy responses to the crisis, like JobKeeper and the highly successful HomeBuilder scheme, have been an economic bullseye. However some important lessons can be learnt by the experience of the commercial tenancy code.
The first is to only regulate when regulation is needed. As the Property Council advocated at the time, commercial landlords were overwhelmingly already engaging with their tenants and providing relief in ways that made sense to those parties. It wasn’t in anyone’s interest for tenants to go broke through the dark early months of lockdown.
Secondly, regulation needs to be reasonable. Of all the temporary measures put in place during the pandemic, only commercial landlords were legally obligated to reduce their prices for the period. Banks merely deferred loan repayments and elsewhere the free market for goods and services continued to operate without price controls.
Thirdly, the red tape burden was immense. Commercial landlords were left to make complex assessments on a tenant’s income and their eligibility requiring new staff to be added and new processes to be created.
Fourthly, implementation is key. Having decided to mandate a code, it took three months or more before state and territory regulations were in place, leading to significant delays in delivering relief to tenants.
And finally, no regard was given to the significant financial obligations that many landlords are also required to meet, or to protections for the many mum-and-dad landlords who had far less financial capacity than their tenants to absorb the costs of the crisis.
Analysis of the impact of the commercial leasing codes by Deloitte Access Economics found that rent relief provided to tenants was at least $4 billion for the period from April to September 2020. With several jurisdictions extending the application of the code well beyond September, it is estimated that this could have seen up to a ten per cent fall in industry revenue.
No other section of the economy was compelled to shoulder such a financial burden on behalf of other market participants during the crisis.
Given the heavy lifting that our industry undertook last year, it is imperative that policymakers support opportunities for the property sector to grow over the next twelve months.