Commercial tenancy code adds cost, red tape for property sector

Commercial tenancy code

A new survey of property owners has highlighted the complexity of commercial leasing codes and the delays these have caused in getting relief to tenants as well as the red tape burden placed on the property sector.

The survey of Property Council members found that only 25 per cent of the amount provisioned for all COVID-19 rent relief from 1 April to 30 September has so far been finalised through agreements with tenants, reflecting state and territory delays in setting up the codes and the complexity of complying with them.

“The commercial leasing codes have unleashed a red tape octopus that has meant that by mid-August, only one in four dollars of rent relief provisioned by landlords has so far been provided to their tenants in finalised agreements,” said Ken Morrison, Chief Executive of the Property Council of Australia.

“These legislated codes took two months for state and territory governments to finalise after the National Cabinet decision in April (2020).

“Once the codes were operational, landlords needed to comply with onerous requirements to determine whether a tenant is eligible for relief and what their loss of turnover had been.

“This has required landlords to take on the role of a ‘shadow ATO’, making assessments on a tenant’s income and their eligibility for rent relief.

“Landlords have had hundreds of applications for rent relief to process under these strict legal guidelines, requiring new staff to be added and whole new processes to be created.

“This red tape has actually slowed down the provision of relief. Instead of moving quickly to make arrangements with those that need it, landlords and tenants have been bogged down in a sea of red tape.

“Commercial landlords have every motivation to support their tenants affected by COVID-19, but the commercial leasing codes have only added cost and complexity to a process that was already in train prior to their implementation,” Mr Morrison said.

“There are no leasing codes with mandated rental outcomes for residential housing, yet landlords and tenants are doing deals and adjusting rents. The market is working.

“Why do we need to tie up the commercial property sector in red tape when landlords are perfectly able to strike swift deals with tenants who might still need their support?”

The Property Council of Australia is calling on state and territory governments to wind up the codes by the end of September (2020), especially in those jurisdictions where restrictions on business trading have been eased.

“Everywhere outside of Victoria business has restarted and is trading again as health restrictions have been eased.

“There is no longer the compelling argument which justifies the mandatory provision of rent relief for many commercial tenants,” Mr Morrison said.

Analysis of the impact of the commercial leasing codes by Deloitte Access Economics found that rent relief provided to tenants covered by the code was at least $4 billion for the period from April to September 2020.

This rises to $8.8 billion if the code is extended to March next year (2021), equating to an estimated ten per cent fall in annual industry revenue.

Source: Property Council of Australia