(NSW) Mandatory Code of Conduct for Commercial Leasing - forced to reduce rent?

If a childcare centre tenant asks the property owner (commercial landlord) for a 50% discount in rent, does the landlord need to negotiate or reduce the rent at all or they can just say "no"? Firstly, I don't think the tenant is struggling, as only a month ago they emailed us asking if we would sell the freehold as they have some improvements they would like to make but it's not worth their investment unless they owned the freehold.

Say they claim there are big changes in the childcare industry so their income have been cut by more than 50%. Say they claim the government will only pay 50% of their total income previously earned, and now they can't charge parents an out of pocket expense.

Does the Mandatory Code of Conduct apply? https://www.pm.gov.au/sites/default...conduct-sme-commercial-leasing-principles.pdf

I don't think it would apply as childcare centres are excluded from the JobKeeper package by NSW government. (They claim to have registered their interest for the JobKeeper payment but a formal application form hasn't been released). It says "The Code will be mandatory for tenancies where the tenant is an eligible business for the purposes of the JobKeeper programme."

I would say childcare centres are one of the businesses not financially affected by Covid-19. The government said it will provide free child care to around one million families. Also:
(a) The Government will pay 50% of the child care sector’s fee revenue (presumably, this would
be paid to each eligible child care and early learning centre) up to the existing hourly rate cap.
(b) The additional funding will only be available as long as centres remain open and do not charge
families for care.

I'm thinking about getting the agent to go back to them and say unfortunately we can't reduce the rent as we have a lot of financial commitements and the tenant has enough funds to survive based on government grants and their request to purchase the property and make improvements to it from communications last month.

What do you all think about this? Any suggestions greatly appreciated. Thank you

 

For their claims revenue has been dropped by 50%, what proof would you ask for? Something from their accountant or bookkeeper?

I also read something about "tenants should consider whether their business interruption insurance policy" for Covid19 claims, but can't remember what it was or if that is relevant.

 

Childcare’s are not excluded from JobKeeper. The idea is that the government pays 50% and the staffing costs are made up by JobKeeper.

The 50% is paid to the centre based on the number of enrolments they had before parents started pulling their children out, which is a date back in Feb or March. If a centre went up in enrolments since then they have kids who are not being paid for. If the centre is in an affluent suburb they’ve lost more than 50% of their income because of the hourly rate cap (eg: a centre in Western Sydney could charge $100/day and be substantially under the cap, they’re getting 50%, but a centre in the city could charge $180/day, they are getting way less than 50%)

I don’t know about commercial leases, just the day care stuff.

 

According to this link they are: Childcare centres excluded from JobKeeper package offered lifeline

Unless there's some new updated news since that date. That's great news if they can get extra government payments.

 

No, this is referring to council run centres and state run preschools, not commercial day cares. Because they’re government run they’re not eligible for JobKeeper, but the state government is stepping up and funding the other 50% for those centres. I’m guessing the day care you lease to are commercial not government run?

 

It doesn’t matter what they ask for or what kind of business they are. Even childcare centres have been impacted because the subsidy isn’t enough. It is all about the reduction of their turnover and that requires real evidence like business bank statements or if they use Xero or MYOB they can just run an Activity statement monthly report I would think . Once you have that and can calculate the drop, then the proportionality principle kicks in which means that you have to reduce rent by same percentage.

I know it won’t be pleasant but if you can afford it give them some relief for say 3 months. If you can’t afford it because you rely on that income for your mortgages, then you can always say no but they can go to meditation (which will ask for real evidence also) and your chances are not good...

Look... It’s bad all around. A 50% loss of turnover to a business is a lot more impact that a 50% reduction of rent... I am sure they had other plans only a few weeks ago as did you. Let’s just hope in 3 or 6 months, things turn around and we all go back to normal.

 

Childcare has been impacted severely hence the recent packages for the govt to contribute towards keeping the sector open (not necessarily profitable).

Rent just happens to be a big number on their expenses but employment costs, food, learning materials etc are also bigger targets.

 

Would you ask a tenant (a Pty Ltd company) for only the company's bank statements with all financial institutions plus a Xero/MYOB activity statement monthly report ? Or also for the director's personal bank statement, plus last financial year's personal and company tax returns, plus something from their accountant confirming the true financial position of the company & director running the company? I would want to make sure that I get all the relevant financial info to make sure I see their true financial situation.

 

As long as tenant can proof 30% turnover decline. I dont think you stand a chance, even if you go to mediation.
those mandatory code specifically mention 30% decline. Does not say anything about how asset tenants has.

going after director personal bank account is too much. So what if he drive ferrari ? What can you do ?

 

What happens if a tenant refuses to provide financial proof requested by the landlord? We requested 3 documents from the tenant for financial proof:

(a) a letter from their solicitor or accountant disclosing their financial position
(b) 2019 company tax return & financials
(c) MYOB or Xero activity statement monthly report

A few days ago our agent said the tenant said "he would get it all together as soon as possible & forward it onto us." But today tenant said "don’t have resources & cashflow available to keep going back to solicitors and accountants when this isn’t required".

He just quoted the Early Childhood Education and Care Relief Package where the government will be paying only 50% off our total income from February and the NSW Mandatory Code of Conduct document & examples.

 

According to the definitions of the Code of Conduct:

"2. Sufficient and accurate information: this includes information generated from an accounting system, and information provided to and/or received from a financial institution, that impacts the timeliness of the Parties making decisions with regard to the financial stress caused as a direct result of the COVID-19 event."

Our tenant refuses to provide any of the financial info we requested in the above post. I guess we could've also asked for bank statements from their financial institution as per the above definitions.

 

similar situation to the above, may i check is there any concession for landlords who are forced to accept the rental reduction? (NSW)

e.g. land tax concession?

 

yes. Dead easy to find... did you try google?

Apply for COVID-19 Land Tax relief | Service NSW

 

my bad, thank you very much spuddy

 

yes, we too have been requesting financial transparency from our commercial tenants claiming hardship. We discounted the rent 33% to 50% as a sign of good faith, for last few months. Guess what? none have provided anything. This month we got tougher, and for simplicity, are just requesting ATO BAS reports (quarterly or monthly) this year and last. With the caveat, "things are getting better, no fin docs = no more discounts". Still no fin docs, tenants are thankfull for discounts so far. And i reckon that's where it will end. (my take on it, they make so much money in the good summer months, they prefer to keep their turnover a secret - and that's ok).

 

When are going to talk out all the businesses that doing really really well? The ones that cut the dead wood out their business, sacked that crap staff, deleted the waste, did a pivot, refocused - and are now making more coin than ever. Plenty of them. Plus they get the Cash Flow Boost - all tax free.

 

Our tenants are receiving 50% income through Early Childhood Education and Care Relief package and their Jobkeeper payments = 46%. So their gross income is 96% of June 19 Qtr. usually their wages = 65%. So they are doing very well as they also get NSW cash bonus and wages expenses less, consumables- less! They will be making more profit out of Covid 19 yet claiming Care relief and Jobkeeper are not “turnover” so demanding 85% reduction in rent (42.5% waiver and 42.5% deferred an amortised over combined lease AND option periods! We are going to mediation - don’t know how we will go. If apply strict “turnover” we lose. If consider the Economic impact of Covid 19 in terms of profitability then we should win.
what does the law really say???
Child care centres exempt land tax.

 

Thanks for sharing. It seems lots of businesses are out there trying to screw their landlords in these times so they can come out ahead.

Were your tenants open in providing you their financial information for you to work out all of this or how did you manage to calculate these figures & if so, what documents did they provide?

 

Firstly they have to prove eligibility for Jobkeeper so I demanded to know this then asked what their BCP (subsidy) is - they were very evasive at first and then I demanded info on their June 2019 Qtr for comparison . There was a lot of sorting as they tried to inflate their 2019 income which was higher due to other reasons. Also got a grant last year. The code says must provide info and I don’t see how can negotiate if don’t have info. Also had to watch quoting monthly income 2019 and compared it to 4 weekly income now! So far we are not offering a rent reduction as they are making more profit. If look at their total income now and take out what they are paging as wages ( which is far less than last year) and compare this with last years total income minus wages paid last year (as per BAS Statement) what is left over to pay rent and other expenses is greater now by 62%!!!!
On top of this out of the measly wages tHey are currently paying staff they take out tax which the employer gets back through NSW Cash boost.
They are basically refusing to recognise any current income as “turnover”. I’m claiming that taking into consideration Revenue, expenses and profitability they are actually positively impacted by covid19. They are making a greater profit and want even more at our expense - to me that is not in the spirit of the code at this time when so many are genuinely struggling! Lodged mediation this am!