South Australia secures nation’s most favourable Code

South Australia secures nation’s most favourable Code

Last night, the State Parliament passed legislation governing the Code of Conduct for Commercial Leases in South Australia. The Code sets out the parameters for landlords negotiating rent relief for COVID-19 impacted tenants.

The Code takes into account a landlord’s ability to grant relief and honours all existing deals already undertaken, making it Australia’s most favourable Code of Conduct for landlords.

This outcome is a direct result of relentless and meaningful advocacy from the Property Council – an approach that highlighted the importance of both landlords and tenants surviving the hibernation period, rather than one party surviving at the expense of the other.

It’s important to acknowledge the role played by Treasurer Rob Lucas and the State Government, and the leadership they’ve shown. Like us, they accepted the proposition that proportionality would have a particularly perverse impact on ‘mum an dad’ investors in addition to the private ownership market we boast in South Australia.

With this in mind, the Code takes into account our state’s unique property ownership profile and as a result is less prescriptive than interstate models. In her speech to Parliament, Attorney-General Vickie Chapman outlined that a key aspect of the Government’s legislation was “flexibility, rather than a one size fits all model.”

The Property Council approached the battlefield of proportionality with evidence about the disproportionate impact on a landlord’s net income and profitability, and we did so to ensure your ongoing business sustainability. Proportionality, as put forward by National Cabinet, does not appear in South Australia’s Code.

You will find below the key aspects to our Code, including the rules around deferred rent repayment which will carry a period of a maximum of 24 months rather than a minimum of 24 months.

Another important aspect relates to subsidiary companies of larger corporate entities who will be exempt from South Australia’s Code, thereby protecting landlords and restoring balance to this regular scenario of a power imbalance.

We have also sought and received clarity around pharmacists refusing to prove their losses during this COVID-19 affected period, who will need to provide revenue datafor the purposes of negotiating rent relief. Pharmacies that are lessees, like all tenants, will have to establish financial hardship to be considered eligible under this Code.

The legislation and regulations will be made publicly available via the Government Gazette this afternoon. In the meantime you can access the Regulations and the Amendment Bill via our website.

Key aspects to the Code:

• A landlord’s ability to grant relief is now a factor to be taken into consideration.
• A landlord will need to give regard to revenue downturn and provisions of the National Code generally, but will not be required to give exact proportionate relief.
• A tenant must be able to establish that it is suffering financial hardship as a result of the COVID-19 pandemic (including pharmacies and chemists).
• Any rent repayment period will have amaximumof 24 months, rather than the minimum 24 month period originally proposed by National Cabinet.
• The regulations cover the six-month ‘prescribed period’ from March 30 to September 30.
• If parties to a commercial lease have already agreed to rent relief, this will not be affected insofar as it operates during the designated period (March 30 to the day the regulations come into operation).
• An ‘affected lessee’ must have an annual turnover of less than $50 million, so subsidiary companies of larger corporate entities are unlikely to qualify for relief.
• Whilst the reduction in turnover of the business of a lessee is a factor to be taken into consideration, the controversial and potentially damaging concept of ‘proportionality’ is not present in the regulations.
• Where there is a dispute, a party may seek mediation by the Small Business Commissioner and then proceed to the Magistrates Court for a determination if this fails.

Importantly, we extend our thanks and appreciation to our members whose work, advice and data armed us with the evidence we needed to mount a case to the State Government and protect landlords through an equitable Code, rather than making them scapegoats.

Without your support, we would not have been able to deliver the nation’s most favourable Code of Conduct for landlords.

As always, we’ve got your back.