Commercial and Residential Tenancies.

UPDATED THURSDAY, 2 APRIL 2020

On Sunday, 29 March 2020 the Prime Minister’s office made the following announcement after the National Cabinet meeting:

Commercial and residential tenancies

As part of its work on helping businesses hibernate, National Cabinet agreed that short-term intervention is needed for commercial tenancies. Work on this has begun, but there is more to do, including for residential tenancies.

National Cabinet 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. As part of this, National Cabinet agreed to a common set of principles, endorsed by Treasurers, to underpin and govern intervention to aid commercial tenancies as follows:

a short term, temporary moratorium on eviction for non-payment of rent to be applied across commercial tenancies impacted by severe rental distress due to Coronavirus;
tenants and landlords are encouraged to agree on rent relief or temporary amendments to the lease;
the reduction or waiver of rental payment for a defined period for impacted tenants;
the ability for tenants to terminate leases and/or seek mediation or conciliation on the grounds of financial distress;
commercial property owners should ensure that any benefits received in respect of their properties should also benefit their tenants in proportion to the economic impact caused by Coronavirus;
landlords and tenants not significantly affected by Coronavirus are expected to honour their lease and rental agreements; and
cost-sharing or deferral of losses between landlords and tenants, with Commonwealth, state and territory governments, local government and financial institutions to consider mechanisms to provide assistance.

National Cabinet will meet again on Monday, 30 March 2020

Source: https://www.pm.gov.au/media/national-cabinet-statement

SMSFs and Rent Relief

The ATO has announced on 27/03/20 a range of measures in relation to SMSFs and COVID-19. Importantly the ATO have clarified the position for SMSFs and related party tenants as follows:

Providing rental relief for the tenant in my SMSF property

If your SMSF has a property and a tenant in financial distress, you may be able to provide your tenant with rental relief under an agreed commercial arrangement. This may even be the case when the tenant is a related party or yourself.

Ordinarily, charging a tenant a price that is less than market value in an SMSF is usually a breach of superannuation laws. However, the ATO have provided guidance which allows SMSF landlords to provide for a reduction in or waiver of rent because of the financial impacts of the COVID-19.

Question

“My SMSF owns real property and wants to give my tenant – who is a related party – a reduction in rent because of the financial impacts of the COVID-19. Charging a related party a price that is less than market value is usually a contravention. Given the impacts of the COVID-19, will the ATO take action if I do this?"

Answer

"Some landlords are giving their tenants a reduction in or waiver of rent because of the financial impacts of the COVID-19 and we understand that you may wish to do so as well. Our compliance approach for the 2019–20 and 2020–21 financial years is that we will not take action where an SMSF gives a tenant – who is also a related party – a temporary rent reduction during this period.”

For the 2019–20 and 2020–21 financial years, the ATO will not take action where an SMSF gives a tenant – who may also be a related party – a temporary rent reduction during this period.

Whether your tenant is related or not, if you wish to provide a form of rent relief to your tenant, please contact us to ensure that you can document this correctly.

Some things to think about:

Ensure the relief only applies to rent.
- Any relief offered to a tenant can only relate to the rent component of the lease agreement. The ATO concession does not extend to other lease incentives.
Is the tenant in an industry that is receiving an enhanced form of Government support?
Is the tenant’s business still operating? If so, has their turn over been decreased and by how much?
Is the tenant’s business shut down?
Who will pay the outgoings if you offer rent relief?
How likely is it that a rent deferral will be caught up later?
What other impacts will rent relief have in the Fund? For example, is the Fund paying off a Limited Recourse Borrowing, or paying pensions to members?
If the Fund now has to pay outgoings, how does available cash look?
If the tenant is hibernating/mothballing their business, how will the property be secured? This may also require confirmation from your insurer that there will be no impact to your building insurance.
Ensure that the reduction in rent is only temporary.
- This means it should have an agreed period of time or agreed date where the rent is reviewed in light of the economic circumstances.
The financial difficulty faced by the tenant is linked to the financial impacts of COVID-19.
- Any negotiated rent relief will need to be measured against the COVID-19 financial impact suffered by your tenant.
Clear arrangements which detail the amount of discount, waiver or deferral of the rent.
- In evidencing that the rent relief is reasonable, it would be best practice if it is consistent with an approach taken by an arm’s length landlord.

If you have residential tenants (non-related) the questions will be similar, but based on your tenants' personal situation including employment.

The answers to these questions are going to change possibly on a daily or weekly basis, based on future Government announcements and on your tenant’s situation. You need to be flexible and ready to update your rent relief/deferral arrangements on an ongoing basis.

If you are in this situation, please call us to work through the issues and to ensure the correct documentation is put in place, allows your auditor to be satisfied that the temporary rent relief satisfies all of the above.

This may take the form of a signed minute, renewed lease agreement or anything deemed appropriate to amend the terms of the lease temporarily.
Even if you are both the tenant and landlord, the above should all be documented.

These are extraordinary times and the ATO is providing this guidance to allow SMSF trustees to be flexible and agile.
If trustees act in good faith in implementing a reasonable and measured reduction in rent because of the impacts of COVID-19 they should not fall foul of the law.

For other ATO information in relation to SMSFs and COVID-19, please click on the button below.

We're here to help.

As always we are only a phone call away, so if you are in this situation, please call our licenced Wealth Managers on (07) 4154 0458 to work through the issues and to ensure the correct documentation is put in place.

Particularly where the tenant is a related party it is not appropriate to just cease paying (or reduce) rent without the appropriate documentation in place.

Kylie Wright and Jes Wilkinson are both accredited SMSF Advisers and SMSF Specialist Advisers.

Our licenced Wealth Managers mobile details as follows.

Kylie Wright - 0409 510 554

Jes Wilkinson - 0437 791 434

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