RH Commercial Insight

8 Property Management Perspective: COVID– 19 Update As we adapt to a very new and in many cases challenging environment there has been a barrage of advice and information from Federal and State Government bodies. Some of this is has sent chills down the spines of commercial and residential property owners and we can only thank the various industry bodies for taking a strong roles in correcting the Queensland Governments perspective. Whilst the position remains unclear in many ways it appears that at the time of writing the residential market in Queensland has taken priority with the state Government who have legislated clear guidelines whilst commercial owners and their managers are still relaying on the National Cabinet Mandatory Code of conduct SME Commercial Leasing Principles during Covid-19” and await de fi ning legislation. For those who have not seen a full copy of these, please fi nd the link below: h tt ps://www.pm.gov.au/sites/default/ fi les/ fi les/national- cabinet-mandatory-code-ofconduct-sme-commercial- leasing-principles.pdf The Guidelines are reasonably clear and well-intentioned but having worked with them for several weeks it is clear that there are still some grey areas both in their application and consequences. Rather than provide a commentary on them, we would like to take this opportunity to share our experience of how the code applied or does not in the real world of day to day management as follows:  The code cannot be e ff ectively applied to every business and the criteria of being eligible for Jobseeker does not provide and e ff ective gauge for some business due to the nature of their work or the company structure so each application needs to be assessed on its own merits.  The essence of the code is for both parties to negotiate on a good faith basis. Where tenants have sort to take advantage of the situation and believe that they have been excused all or some obligations under their lease it is our understanding that they have e ff ectively excluded themselves from the Code and breach notices and ultimately repossession may be on option, subject to obtaining legal advice.  As we negotiate new waters and cannot predict what will happen with the spread of Corona Virus or how the Federal or State Government will react and in this rapidly changing landscape it is an advantage were rent is being defer or waived that agreements be kept short and that provision is made to review arrangements depending on real time developments. Some owners are opting to review the situation monthly whilst most feel comfortable with agreements up to 3 months.  As Jobseeker has not a yet e ff ectively come to fruition and an application for assistance does not automatically mean acceptance we have needed to establish a tenants real eligibility for assistance in other ways. The code allows the owners to request “information generated from an accounting system, and information provided to and/or received from fi nancial institutions, that impact the timelines of the Parties”. Documents such as BAS statements, prior tax returns and real time trading fi gures can help in assessing eligibility and ultimately if deemed necessary the assistance of an accountant should be sort.  Many tenant are opting to negotiate outside the Code if they are able. The feedback we have received is that they do not wish to enter into what is e ff ectively a debt situation for the company by deferring a proportion of the rental. Often in these situations the tenants is opting to pay a higher amount of rental than would be payable under the Code arrangements in return for a waiver of the residue. This has the advantage of increasing cash fl ow for the owner in di ffi cult times and allows the tenant to avoid long term unwanted debt.  Following on from the point above and in conjunction with the provision of Clause 5 of the Codes Leasing Principles that provide ´”Payment of rental deferrals by the tenant must be amortised over the balance of the lease term and for a period of no less than 24 months ,whichever is the greater”. We suspect this may become the biggest issue in the future as this e ff ectively provides for the provision of an unsecured loans that could easily exceed any amount of security being held. Whilst those tenants on a longer lease are more likely to honour this arrangement it would seem inevitable that some tenants, especially those who opt not to extend their lease and vacated may seek to avoid repayment of the deferred rental.  Any arrangements made under the code or outside of its conditions must be documented and clearly spell out the terms and condition of the arrangement. Depending on the individual circumstances, some owners are opting for a formal amendment to the lease document prepared by solicitor whilst others are happy to rely on a simple exchange of le tt ers We hope that the observation above have been helpful and would urge you to look at Appendix 1 at the back of the Code as it provides some clarity in relation to how the deferral and waiver arrangement should work, as this seems to have presented some confusion In summary we recommend assessing every application individually and on their own merits, do not discount looking at solutions outside of the Code and make sure that arrangements are short term and are fl exible to allow you to adapt to changes as they occur. Should you need any assistance with nine very experienced Property Mangers all working remotely we are con fi dent that we can provide you with the best service possible whatever circumstances arise and can assure you that your interest are always foremost in our minds.