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COVID-19 Rent Deferral Strategy
COVID Rent Relief: 5 steps for landlord sub-Branches
The NSW Government has reinstated the COVID rent relief regime for impacted lessees for the period 13 July 2021 to 13 January 2022. The regime is relevant to many sub-Branches who earn their charitable income through commercial property leases, most commonly to registered clubs. The regulations, which can be found here, provide information as to who is an impacted lessee and how landlords and lessees must work together.
Sub-Branches are encouraged to engage with their lessees when approached by them for rent relief but must do so on the basis that sub-Branches are charities with legal obligation to apply income for the charitable purpose (being support and assistance for veterans and their families). The following steps apply.
STEP 1 – Determine if the Lessee is an “Impacted Lessee”
The lessee must show the sub-Branch that they are an impacted lessee for the purposes of the regulations by providing evidence that they satisfy each of the following criteria:
- they qualify for either one of the 2021 COVID Microbusiness Grant, 2021 COVID-19 Business Grant or 2021 JobSaver Payment
- they have a turnover for the 2020/2021 financial year of less than $50 million; and
- they have entered into their lease before 26 June 2021.
STEP 2 – Agree Rent Relief
The lessee must show you that their turnover has been impacted by COVID-19 from 13 July 2021. If the tenant is finding other and creative ways to earn income, for example, through takeaway or delivery mechanisms, then that is still income that they are earning and should be factored into the calculation. Government grants paid to a tenant must also be factored into the income calculations.
The default standard for rent relief is as follows:
- rent reductions are to be proportional, based on the decline in turnover directly attributable to the impact of COVID-19; and
- at least 50% of the rent reduction must be a waiver (unless the tenant agrees otherwise), with the balance to be deferred.
Sub-Branches must apply the default standard in the absence of any financial assistance that they obtain (see Step 3) that improves their position and allows them to pass on any additional benefit to lessees.
The agreement between the parties should include a repayment plan for the 50% rent deferral. Payment of rent deferrals should be amortised over the balance of the lease term and for a minimum period of 24 months unless an agreement is made to repay the deferred amount sooner (which should be encouraged where a lessee has the means to do so).
STEP 3 – Actively seek financial assistance available to Landlords
The NSW Government has announced support for property owners by way of the Commercial Landlord Hardship Fund. This fund will provide support to smaller property owners whose main source of income is impacted because they have provided rent relief to their tenant.
Sub-Branches may be eligible for a monthly grant of up to $3,000 if they provide rental waivers of at least the value of the grant and any land tax relief they are eligible for, noting that land tax relief is not available for sub-Branch landlords given RSL property is exempt from land tax.
To be eligible for the grant landlords must satisfy each of the following criteria:
- have total taxable unimproved landholdings of less than $5million
- have rental income as their primary source of income
- have a tenant that is an impacted lessee (see above)
- have provided rental waivers to impacted lessees of at least the same value of the grant (and any land tax they are eligible to receive); and
- attest that providing rent relief to their tenant will cause them financial hardship.
Detailed guidelines on how to apply for assistance are yet to be published.
STEP 4 – Document your agreement with the impacted lessee
The agreement between the parties should be documented. This can be by simple letter exchanged between the sub-Branch trustees and an authorized representative of the lessee (usually a club director). The agreement should include the evidence provided by the lessee that they are an impacted lessee and that their turnover has been impacted by COVID-19.
STEP 5 – Send a copy of the agreement to RSL NSW
Please provide RSL NSW with a copy of the agreement between the lessee. It is very important that documentation is filed so that the sub-Branch is compliance with the RSL NSW Constitution can be verified and to ensure that RSL NSW can support you discussions with impacted lessees.
Please contact the RSL NSW Support Team for any questions or concerns you may have in relation your tenancies. It is very important that sub-Branches and their commercial tenants continue to work together while keeping our core purpose in mind as we do so.