Banks will need to play their part in providing loan repayment relief to landlords, as measures to offer tenants rental relief increase, the Prime Minister has said.
The Prime Minister Scott Morrison announced on Friday (3 April) that the national cabinet would be creating a mandatory Code of Practice to be implemented between landlords and commercial tenants.
This code aims to cover instances in which the tenant has suffered financial hardship due to the COVID-19 pandemic and the introduction of the subsequent strict social distancing measures, which have affected trade.
The national cabinet has previously agreed to a moratorium on evictions over the next six months for commercial and residential tenancies in financial distress who are unable to meet their commitments due to the impact of coronavirus.
“Commercial tenants, landlords and financial institutions are encouraged to sit down together to find a way through to ensure that businesses can survive and be there on the other side,” Mr Morrison said last month.
On Friday, he added that an industry Code of Practice for commercial tenancies, including retail tenancies, has been worked on by the various stakeholder groups representing tenants and landlords “over the course of the next few days”.
Details of the code will be released at a later date. However, the Prime Minister stated that it will make provisions to provide a facility for mediation and negotiation between the landlord and the tenant, whereby a mutual agreement cannot be reached prior.
Further, according to Mr Morrison, the mandatory industry code will only be applicable to small to medium-sized business tenants with a turnover of less than $50 million, and those that are already participants in the government’s JobKeeper program, meaning they must have seen a 30 per cent loss of revenue since the outbreak of COVID-19.
Mr Morrision noted that an “important” component to the code is that “both parties negotiate in good faith” and that the code encapsulates a “proportionality principle”, meaning that the turnover reduction of the tenant should be reflected in the final rental waiver outcome.
The Prime Minister stated that how this principle is implemented is to be decided upon by the landlord and the tenant.
However, Mr Morrison highlighted that for these matters, Australia’s banks “will need to come to the party as well.”
“The banks are not parties to those arrangements, so that makes it legally, a little more difficult.
“But banks are already moving to providing all sorts of new facilities and arrangements to their customers, and we would expect banks to be very supportive of the agreements reached by landlords and tenants who would be working under this mandatory code,” Mr Morrison said.
“This is going to be a tough time if you’re a tenant, and I know there’ll be landlords that will feel it as well... And that’s why the banks are going to do the right thing by them.
“This isn’t about picking sides. It’s about ensuring that Australians work together to solve a problem that they share together.”
Agents warned against residential tenancy advice
The government is yet to hand down formal guidance regarding residential tenancies, stating that its “priority” is on commercial leases. However, it is expected that an announcement relating to residential tenancies will be made in the coming days.
Additionally, the government has also provided anyone currently on JobSeeker payments with early access to up to $10,000 of their superannuation per year.
However, controversy has ensued over anecdotal evidence, suggesting landlords and agents have been advising residential tenants who have lost their income to access their super in order to pay their rent.
Prior to the Prime Minister’s address, the Australia Securities and Investments Commission (ASIC) released an open letter to real estate institutes, warning them of the legal danger of recommending that tenants facing financial hardship should access their superannuation to make rental payments.
The letter suggests that in doing so, agents are both soliciting “unlicensed financial advice” as well as failing to work in the best interests of the individual, both of which are direct contraventions of the Corporations Act.
“Financial advice must only be provided by qualified and licensed financial advisers or financial counsellors, not by real estate agents who neither hold the requisite licence, nor are an authorised representative of an Australian Financial Services Licensee,” ASIC said.
ASIC noted that individual agents found to be in breach of the Corporations Act could face up to a maximum of five years imprisonment, and/or a fine of up to $126,000, whereas their company could face fines of up to $1.26 million.
“Tenants facing financial difficulty need sound financial guidance and potentially debt counselling,” ASIC said.
“Specifically pointing them to and recommending them to consider the specific possibility of accessing superannuation is, again, likely to amount to a breach of the Act.”
[Related: Big banks offer mortgage repayment relief]