DEAR LANDLORD

MANDATORY CODE OF CONDUCT

SME LEASING DURING COVID-19

Last updated: 29 April 2020

We have had numerous enquiries from businesses who are unable to pay their rent due to COVID-19 and need assistance in their negotiations with their landlords.  To assist the business community, we have put together a template here which tenants could use as a starting point for a letter to their landlords.  (The template will be reviewed once the Victorian regulations have been promulgated, which is expected to be in the next week or two). 

 

Of course, there is no “one size fits all” for this type of letter, the template will not suit all circumstances and it is recommended that legal advice should be obtained before using the template.  The template is not intended to constitute legal advice.

 

Please see our related article here.

Draft letter to Landlord

[Date]

[Landlord’s name]

[Landlord’s address]

 

 

Dear Sir/Madam

 

Re. [TENANT NAME]:  Lease of [PREMISES LOCATION AND DESCRIPTION] – COVID-19

 

We are experiencing disruption and financial stress caused by the economic impacts of industry and government responses to the declared Coronavirus (COVID-19) pandemic and like many other businesses our turnover and cashflow have been severely affected.

 

As a result, we are unable to pay the full rent due under our Lease with you, and would like to explore the possibility of reducing our obligations under the Lease as a temporary measure until normal business activities are restored.

 

To give you an idea of the financial impact COVID-19 has had on our business, we enclose copies of the following:  [Possible documents to consider – obtain legal advice in this regard]:  Profit and loss statement for the last 12 months; cash flow statement over last 12 months; budget for the next 6 months; report from our accountants; bank statements over the last 12 months; BAS returns since 1 April 2019]

 

After careful assessment of our financial position, we are only able to pay rent of $## per month.  This represents a rent reduction of $AA## and is reflective of the reduction in our net revenue as a result of COVID-19. 

 

Proposals

 

We therefore respectfully request that with effect from [1 March/April/May 2020], during the rest of the COVID-19 pandemic period and for a subsequent reasonable recovery period the following terms apply:

 

  • A rent reduction of $AA## apply, of which [50% or other higher percentage – obtain legal advice in this regard] will be waived and the balance of which will be deferred.

 

  • Payment of rental deferrals will be amortised over [the balance of the lease term and for a period of no less than 24 months, whichever is the greater – obtain legal advice in this regard]

 

  • We will pay interest on the deferred balance outstanding from time to time at the rate of ##% per annum.  No fees, charges or other interest charges will be raised in respect of rent deferrals.

 

  • There will be a waiver of all expenses and outgoings payable by us as tenant under the Lease.

 

  • We will have an option to extend the Lease on existing Lease terms for a period of [##– obtain legal advice in this regard] months, in order to give us additional time to trade and the means to service our debts during the recovery period after the COVID-19 pandemic concludes. 

 

  • We are authorised to reduce opening hours and at our discretion to cease trading, and you will not apply any levy or penalties in relation to any such reduction or cessation.

 

Once the terms of a temporary arrangement have been reached, a Deed of Variation of Lease should be entered into between us.

 

The Leasing Code

 

We understand that the Government has issued a “National Cabinet Mandatory Code of Conduct - SME Commercial Leasing Principles During CovID-19” (Code) to assist us to come to an agreement on temporary lease arrangements.  Some principles of the Code for you to consider are as follows:

 

  • If the landlord receives any reduction in statutory charges (e.g. land tax, council rates) or insurance, it must pass these reductions on to the tenant in the appropriate proportion applicable under the terms of the Lease.

 

  • The landlord must seek to share any benefit it receives due to deferral of loan payments, provided by a financial institution as part of the Australian Bankers Association’s COVID-19 response, or any other case-by-case deferral of loan repayments offered to Landlords, with the tenant in a proportionate manner.

 

  • Landlords must not draw on a tenant’s security for the non-payment of rent (be this a cash bond, bank guarantee or personal guarantee) during the period of the COVID-19 pandemic and/or a reasonable subsequent recovery period.

 

  • The landlord and tenant must enter into good faith negotiations regarding possible temporary amendments to the Lease, with the objective of aiding the management of cashflow for SME tenants and landlords on a proportionate and appropriate basis, based on the impact of the COVID-19 pandemic on the tenant (e.g. impact on revenue, expenses, and profitability) during the COVID-19 pandemic and for a reasonable recovery period thereafter. 

 

  • Landlords must not terminate leases (or evict tenants) due to non-payment of rent during the COVID-19 pandemic period (or reasonable subsequent recovery period).

 

We confirm that the Code applies to us, as we are an eligible business for the purpose of the Commonwealth Government’s JobKeeper programme, and have an annual turnover of $50 million or less (and have suffered disruption and financial stress caused by the economic impacts of industry and government responses to COVID-19).

 

Information from Landlord

 

The Code also drives home the principle that landlord and tenant are to act in good faith, in an open, honest and transparent manner, and to provide each other with sufficient and accurate information.  We therefore request that you provide us with the following details and documents:

 

  • Details of any reduction in statutory charges (e.g. land tax, council rates) or insurance which you have received or will receive in connection with COVID-19.

 

  • Details of any loan repayment deferrals or other concessions provided by a financial institution as part of the Australian Bankers Association’s COVID-19 response, or any other case-by-case deferral of loan repayments offered to landlords.

 

  • The following documents:  [Possible documents to consider – obtain legal advice in this regard]:  The landlord’s profit and loss statement for the lease of the premises over the last 12 months, cash flow statement over last 12 months, budget for the next 6 months, bank statements over the last 12 months and BAS returns since 1 April 2019].

 

We look forward to working together with you to arrive at a mutually acceptable arrangement.

 

Your faithfully

 

 

 

[YOUR NAME]

[YOUR ROLE]

[COMPANY NAME]

 

 

 

Encls.

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