The COVID-19 pandemic has been particularly distressing for businesses as many were forced to close their stores or have been deprived of their standard profits. The small ventures which have managed to survive have been heavily relying on the relief provided by the Federal Government. One of the biggest aids came in the form of the six-month moratorium on tenancy evictions which began in March 2020.
Since most commercial tenants were concerned about its ending and facing harsh consequences, the Federal Government has decided to extend the eviction ban. The news has come as a respite for struggling business owners who are dealing with losses and fixed costs at the same time. However, it has not made the small commercial landlords happy who have to manage mortgage and livelihood with reduced rents. Thus if you are planning to purchase or rent commercial real estate in Australia, then you must be aware of the repercussions of the eviction ban extension on both the parties. Here is a rundown on the impact of this relief measure on tenants and landlords.
Eviction Ban Extension Across Australia
The extension rules released by the Government state that commercial and residential tenants cannot be evicted from the rented property if they are undergoing a financial crisis during the pandemic. The mandatory code of conduct put in place for this purpose has set up guidelines for good faith leasing.It includes all types of properties leased to small and medium-sized businesses ranging from industrial and retail to offices. The code is applicable to businesses which have a yearly turnover of $50 million and are qualified for the JobKeeper Payment.
The moratorium initiated in March had led to rent reductions and deferrals across Australia to save small businesses which were finding it hard to pay the fixed costs. Several tenants utilised the JobKeeper Payment to pay the reduced rents and have benefitted from the move during the last six months.
Following the extension instructions, the State Governments have extended the eviction ban until December, and some have even taken it to 2021. Victoria, New South Wales and Queensland have pushed the final date to December 2020, and Western Australia and South Australia have stretched it until next year. The intention is to provide further support to the entities which have been highly impacted by the social distancing norms and lockdown periods and the rental markets which are bearing the brunt.
How the Landlords and Tenants Are Viewing the Extension
While the move to extend the deadline has been welcomed by the tenants, it is not being appreciated by the landlords. The commercial property owners are displeased with some of the leasing principles that propose prohibition of increase in rent and exemption from the penalty if the tenant vacates a property before the end of the lease term due to financial constraints.
Landlords are also upset about the fact that while they have been allowed holidays on loan repayments to banks, they will not be getting any relief when it comes to the interest that is accruing. It has made it difficult for them to sustain the properties with a reduction in the rent. Thus they will have to ask their tenants to vacate once the moratorium ends in their state.
On the other hand, the tenants are heaving a sigh of relief as they are dreading the end of the moratorium. Most of them feel that they will not to be able to afford the original rent without getting any support from the government. Thus they will have to vacate since there will be no ban on evictions once it is over.
Taking up the cause of the landlords, the Property Council of Australia made its disapproval clear over the extension in August itself. It came out with a report that projected that the extra time would lead to a burden of an additional $4.8 billion on the landlords. The amount will be added to the existing cost of $4 billion borne by commercial property owners during the first six months of the moratorium. Although the moratorium has been brought into place to assist businesses, it is being perceived as being biased towards one segment of the commercial sector.
The benefits offered to Landlords and Their Concerns
Understanding the sentiment of commercial landlords, state governments have come into action and done their part to save them from losses. The Victorian Government has doubled the land tax discount to 50% from the existing 25%. Plus, they have created a $60 million fund that offers $3000 per tenancy to owners of small commercial properties. A similar land tax concession discount has been adopted by the NSW Government.
Also, most of the disagreement cases between landlords and tenants over rent issues have been resolved through mediation during the first six months of the moratorium. The Queensland Government went a step ahead and prepared a dispute resolution guide for landlords and tenants to follow during the crisis.
However, the Real Estate Institute of Victoria has its reservations over the extension and feels that it will be challenging for the landlords who are already suffering. The sentiment has been shared by the acting NSW Executive Director of the Property Council. He said that since the state is open to business once again, there is no need to continue with the rent relief scheme. His words were echoed by the WA Executive Director as the moratorium has been extended until March 2021 in the state.
The South Australian Government has followed suit and extended the land tax relief scheme until April 2021. Also, Tasmania has increased the timeline of banning evictions until December 1, 2020, and Australian Capital Territory has pushed the deadline to January 31, 2021. Northern Territory does not have an eviction moratorium in place but has announced relief measures for businesses including payroll tax and utility bill aid. Plus, the NT government has made it mandatory for the landlords to negotiate in good faith over a rental dispute for 30 days before serving the notice to vacate the property.
If you are planning to make an investment in one of the commercial properties for sale in Australia, then you should know about the rent relief schemes offered by each state and territory. It will help you to understand the condition of the market and fix an appropriate rent for the property.
Sophie Barrett is an experienced real estate marketing professional with a specialisation in commercial property market. She has a Masters degree in marketing from the esteemed Melbourne Business School and has several property management certificates to her credit. Her shrewd marketing policies and business acumen have led to the most rewarding property deals in the major capital cities of Melbourne, Sydney and Perth. She is a popular name in the real estate market and has been serving the industry for almost two decades now. CommercialProperty2Sell is proud to partner with her for some astute discussions and advice on the booming sector.
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