Webinar update – thanks, apologies and spoiler alert!

April 24, 2020

Uncategorized

OK, so we had some technical problems in today’s webinar.  Thanks for those who attended and sorry we left you hanging on the line.

We recorded the webinar and it is being edited.  We expect to post it in the next few days.  I will post a link when it is available.

In the meantime, I have attached a copy of Abi and my PowerPoint slides.  You will need a copy of the Code with you to make sense of them: https://www.pm.gov.au/sites/default/files/files/national-cabinet-mandatory-code-ofconduct-sme-commercial-leasing-principles.pdf

Thanks also to everyone who sent questions to us.  We have tried to address most of the questions in the second half of the attached slides.

Spoiler alert – here is a summary of the take-home points from the webinar.

The Act is only enabling legislation.  We will need to wait until we see the Regulations before we know the details of the emergency measures for landlords and tenants.  We will try to conduct another webinar when the Regulations are published.  There are, however, a few things that we have learned from the Act.

First, the Regulations will apply to SMEs with a turnover of under $50M.  Although this is in the Code, some states seem to be heading in a different direction (WA in particular). Also, it applies if the SME has a turnover of under $50M in either the preceding financial year or this financial year, so the downturn caused by COVID-19 could bring some entities into the Regulations.

Secondly, the Regulations will apply to an employer who qualifies for ‘and is a participant in‘ JobKeeper.  The requirement to be ‘a participant in’ the JobKeeper scheme is new and is not in the Code.

Thirdly, the Regulations will apply to licences as well as leases, which will capture franchisee outlet licences and co-working spaces (provided they are used for businesses).

Also, on our reading, it applies to head lease and sub-lease/licence separately.  Consider, for example, a franchisor with a turnover of over $50M that takes a head lease and grants an outlet licence to a franchisee.  The franchisor may be answerable to the landlord for the rent without the protection of the Regulations, while the franchisee would have the protection of the Regulations with respect to the licence fee payable to the franchisor.

Fourthly, revenue for the $50M cap will be assessed on a group basis.  ‘Group‘ looks like it will have quite a wide definition and is likely to include companies that are under the same effective control or sphere of influence, even if not strictly related in the usual way (ie parent or sibling companies).

Fifthly, the Regulations will have retrospective effect from 29 March 2020 in order to capture rent that fell due on 1 April 2020 and will sunset on 29 September 2020.  It is not clear how this retrospectivity will operate at this stage (eg the WA Bill allows for a form of partial retrospectivity that does not invalidate acts already completed).

Sixthly, mediation will be conducted at the Small Business Commission and will follow a similar model to the requirement to mediate under the RLA 2003.

We do not have a release date for the Regulations, but they are expected any day.

It is wise for landlords and tenants to start negotiating now (if they have not already).  If a landlord or tenant think they can get a better deal than the Code and Act suggest, it is a good bet to do that deal now, before the Regulations are handed down.  Be wary, however, that the Regulations may have retrospective effect.  It is unclear what the legal validity will be of pre-negotiated lease variations (although it seems unlikely that they will be invalidated).

If you cannot do a deal now, we suggest the following:

  1. Eligible tenants should get onto JobKeeper now to get the benefit of the Regulations when they are passed.
  2. Tenants should also be putting together evidence of the downturn in their trade/revenue and should engage with their accountants if appropriate.
  3. If you think a deal is unlikely even after the Regulations are passed, apply to the OSBC for mediation early. There will be a lot of mediations and the queue for a mediations is likely to be long.

My particular thanks to Abilene Singh for co-presenting the webinar.

About Sam Hopper

Sam is a property and insolvency barrister.

View all posts by Sam Hopper

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