But larger retailers not captured by the code because their sales are greater than $50 million demanded that big landlords, such as shopping centres, embrace the same principles to offer rent relief.
Richard Facioni, chairman of Mosaic Brands, which has closed almost 1400 stores and stood down almost 7000 employees, said larger retailers had been left “hanging in the wind.”
Many large retailers had been waiting for the code guidelines before they started negotiations with landlords.
“It would have been sensible to see a more holistic solution across the board,” Mr Facioni said.
“Every landlord and every retailer is likely to take a different approach. Each landlord has different pressure points and each tenant has different pressure points – in truth, it’s going to be a sit-down negotiation with each landlord.”
“It would make more sense to say no rent for three months and we’ll extend your lease for three months at the back end or a reduced rent for that period whilst you’re trading below [normal sales]. Clearer guidelines would make those negotiations easier.”
Each state will have responsibility for legislating or regulating the code of conduct, which was finally signed off by national cabinet on Tuesday.
Residential tenants left to states
National cabinet also decided the states would individually determine how to protect residential tenants, with no overarching national principles other than a six-month moratorium on evictions.
Under the code, a business would be eligible for rent relief if it has an annual turnover of less than $50 million, has suffered a 30 per cent economic hit because of the coronavirus pandemic and it received JobKeeper wage subsidies.
The $50 million turnover threshold would be applied in respect of franchises at the franchisee level, and in respect of retail corporate groups at the group level, rather than individual store level.
As foreshadowed, the rent reductions would be proportionate to the loss a business has suffered.
Rental waivers must make up no less than 50 per cent of the proportion of which the qualifying tenant’s revenue has fallen.
Payment of deferred rent must be amortised over the balance of the lease term and for a period of not less than 24 months but repayments cannot be demanded if they threaten the viability of the business during the recovery phase.
In practice, if a qualifying tenant suffered a 30 per cent fall in revenue, then at least 15 per cent of total cash flow relief would be rent-free or waived and the remainder would be deferred.
If negotiations stall between landlord and tenant, they can be referred to binding mediation.
While the code does not allow a landlord to evict a tenant or tenant to break a lease if a landlord fails to negotiate they will lose access to concessions such as land tax or council rates relief or loan repayment holidays offered by banks. In such a scenario, a tenant would be able to break their lease.
“They’re legally required to do it, so in not following the legal requirement, they will be forfeiting their rights as landlords,” Prime Minister Scott Morrison said of stubborn property owners.
Mr Morrison urged foreign institutional banks and lenders to follow the example set by local banks and offer loan repayment relief to landlords to help them out.
Shopping Centre Council chief Angus Nardi said the industry welcomed the proportionality approach, “which we understand provides a set of guiding principles and examples, which will ultimately be negotiated on a case-by-case basis”.
“Like many other industries, centre owners are receiving high volumes of requests for assistance. These are being worked through as quickly as possible.”