Commercial Leasing for SMEs during COVID-19

Last update:  8 April 2020

The National Cabinet has announced a mandatory code of conduct for commercial tenancies where the tenant is a small-medium sized business (annual turnover of up to $50 million) eligible for the Government's JobKeeper program. 

The scheme will see tenants lease reduce in line with the reduction in business for the tenant. The reduction will be made through waivers and deferrals in payment, with waivers making up at least 50% of the lease reduction.

A full copy of the code of conduct is available HERE.

Examples from the code of conduct

Appendix I
Examples of practical variations reflecting the application of the principle of proportionality may include, but are not limited to: 
  • Qualifying tenants would be provided with cash flow relief in proportion to the loss of turnover they have experienced from the COVID-19 crisis  
    • ie. a 60% loss in turnover would result in a guaranteed 60% cash flow relief. 
    • At a minimum, half is provided as rent free/rent waiver for the proportion of which the qualifying tenant’s revenue has fallen.  
    • Up to half could be through a deferral of rent, with this to be recouped over at least 24 months in a manner that is negotiated by the parties  
      • So if the tenant’s revenue has fallen by 100%, then at least 50% of total cash flow relief is rent free/rent waiver and the remainder is a rent deferral.  If the qualifying tenant’s revenue has fallen by 30%, then at least 15% of total cash flow relief is rent free/rent waiver and the remainder is rent deferral.  
      • Care should be taken to ensure that any repayment of the deferred rent does not compromise the ability of the affected SME tenant to recover from the crisis.
  • The parties would be free to make an alternative commercial arrangement to this formula if that is their wish. 

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