July 14, 2020

Commercial Property And COVID-19

COVID-19 has had a real impact on the commercial property sector. We look at what’s happening in commercial real estate right now and what relief is available for both tenants and landlords.

COVID-19 and the current state of play in commercial property

The retail, travel and hospitality sectors – which make up a large portion of Toowoomba’s local businesses – have also been among the worst-affected segments of our economy. Most companies within these industries have had to make significant changes to the way they operate. Many have also experienced significant losses.

In fact, ABS figures reveal that 72% of all businesses across Australia have suffered a decrease in their revenue due to COVID-19.

That said, the economic impact on businesses has been nothing if not uneven. Many cafes or shops have been forced to shut their premises. Others, including some manufacturers, have been able to pivot. A lucky few, such as those involved in online shopping and home deliveries, have had something of a boom as a result of the Coronavirus.

Nationally, the unemployment rate has risen from 5.2% in March 2020 to 7.1% in May. Here in Queensland, it’s higher at 7.9%. In April, Toowoomba actually held the unlucky crown with the highest youth unemployment rate in the country, at 24%.

Many businesses are set to face more uncertainty when the Government’s JobKeeper payments end in September.

This is having a real impact on the commercial tenancy market with many businesses no longer capable of paying full rent.

The Government’s Mandatory Code of Conduct

The Commonwealth Government released a Mandatory Code of Conduct on 9 April 2020. Its intention was to prepare for and resolve any commercial tenancy issues resulting from the COVID-19 pandemic by asking landlords and tenants to work together, in good faith, during this extraordinary time.

The Queensland Government recently finalised a Regulation that passes the Code into State law. It came into effect on 28 May 2020 and is now enforceable. That means it’s crucial that landlords and tenants understand what they need to do.

What measures have been brought in to help commercial tenants?

The new regulations cover what they define as “affected” commercial leases. To fall into this category a lease must:

  • Have been in effect on 28 May 2020
  • Be a retail shop lease or lease for carrying on the tenant’s business
  • Apply to the premises where the tenant carries on business this financial year or is a non-profit body.

The Code applies to commercial tenants (including retail, office and industrial tenants) suffering financial stress or hardship. These businesses must have had a turnover of less than $50 million in FY2018-19. Alternatively, a business can qualify if it’s likely to have a turnover of under $50 million for the 2019-20 financial year.

It must also be eligible for the JobKeeper Payment scheme, even if it hasn’t enrolled.

What relief must landlords grant to commercial tenants?

Where a commercial tenant meets these criteria, between 29 March 2020 and 30 September 2020, a landlord:

  • Can’t evict them or terminate their lease for not paying rent or outgoings
  • Must agree to reduce their rent in proportion to lost turnover. At least 50% of the rent reduction offered must be in the form of a waiver and the rest can be deferred
  • Must not increase the rent
  • Can’t penalise them for reducing their trading hours or not opening
  • Can’t make a claim on a bank guarantee or security deposit for unpaid rent or outgoings.

That said, tenants should always remember that they shouldn’t just stop paying the rent. The first step they should always take if they’re having difficulty meeting the rent is to speak  with their property manager or landlord.

What measures have been brought in to help commercial landlords?

The good news is that both the government and the banks are offering support to commercial landlords affected by COVID-19. This help is conditional upon landlords passing on benefits to their tenants via rent reductions or relaxing other obligations.

Landlords impacted by COVID-19:

Landlords can also call the Small Business Financial Counselling program on 1300 732 777 for advice.

Need help?

Contact our experienced team today if you are a commercial tenant or landlord and have any questions or need help.

Commercial Landlords can read the QLD Government information here.

Commercial Tenants can read the QLD Government information here.

Toowoomba Region Council also has a dedicated resource for local businesses.

Article by Katie Knight

Some may say real estate is in Katie’s blood having joined real estate following her father, Ian Knight, into the industry where he had pioneered the path of real estate in Toowoomba in the late ‘80s and opened the ninth regional RE/MAX office… View profile

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