Though COSBOA welcomes the NSW Government’s re-introduction of the National Cabinet’s mandatory Code of Conduct for Commercial Leasing, we would like to see additional support measures put in place to create a level playing field for small business tenants.
There is a power imbalance between small business owners and big landlords that needs to be addressed. In 2020, despite the Code, big landlords such as shopping centres could still flex their power by using stalling tactics, threatening personal assets, and/ or refusing to negotiate at all.
COSBOA is proposing the following measures:
The introduction of a hardship test to be administered by the NSW Small Business Commissioner or NCAT. If businesses satisfy the test, landlords would be required to negotiate rent reductions and forgive any outstanding rent.
Required mediation for landlords that fail to agree
The enforcement of good faith negotiations during mediation
That the state government fund the gap between current rent and negotiated rent for two full quarters, capped
The establishment of a time to recover government loan program to support small businesses as they rebuild.
Measures like these would help to hold landlords accountable for their poor behaviour, and enable fairer treatment of small business tenants who don’t have much leverage over powerful and greedy landlords who have already made up their mind that they won’t budge.
The measures would also provide more certainty for landlords that rent will be paid.
When considering the best approach to rent relief, it should be remembered that small businesses are in more debt than they were in 2020. Many negotiated to defer rent payments during last year’s lockdowns and are still under that burden. Further rent deferrals aren’t a viable solution – it’s kicking the can down the road.
In the end, it’s not the small business’ nor the landlord’s fault that the tenant is struggling pay rent – it’s a consequence of government mandated lockdowns and restrictions. This is a government-created problem that needs government intervention.
Further details on COSBOA’s proposal are below:
Last year tenants and landlords had to exchange financial documentation themselves before agreeing to mediation. Big landlords often used stalling tactics such as asking small business owners for more documentation than the minimum required under the Code, or questioning details in the documentation. Some tenants couldn’t afford to go to their accountant to get the required documentation for loss of turnover. Some landlords insisted that receiving government support like JobKeeper meant the business could afford to pay rent.
The hardship test aims to solve this problem by placing the responsibility of determining whether the small business is suffering hardship severe enough to require rent relief on the state government. Businesses that satisfy the hardship test would be issued with a Hardship Assessment Notice and be required to provide a copy of it to their landlord, after which the landlord would have 14-21 days to enter into a reduced rental agreement or allow the tenant to exit the remaining lease without financial penalty. Additionally, tenants that satisfy the hardship test would be forgiven from any outstanding rent.
Good Faith Mediation
If landlords fail to negotiate, the parties would be required to attend mediation. COSBOA is proposing for good faith mediation to be enforced. Good faith means that both parties must come to mediation prepared to make genuine offers to resolve the dispute. Unfortunately, COSBOA members reported last year that some landlords would attend mediation purely to be able to say that mediation had taken place; they had no intention of negotiating. To hold them accountable for this behaviour, mediators should be able to include a statement on the mediation certificate that the landlord ‘did not act in good faith.’ That way, judges or tribunal members can consider this if the dispute ends up in a court or tribunal.
Fund the Gap
Lockdowns are neither the landlord nor the tenant’s fault, yet much of the economic burden is placed on them. We think governments should shoulder some of the burden of the lockdowns that they have enacted. COSBOA is therefore proposing that governments fund the gap between the normal rent and the negotiated rent, subject to a cap. This also gives landlords more certainty that rent will be paid.
Time to Recover Loan
Small businesses won’t be able to turn back on like a tap or a light switch once lockdowns have lifted. Many otherwise viable businesses are suffering from accumulated debt, whether it’s rent, mortgage payments, tax, or a loan. Without intervention, many small business owners won’t be able to meet these obligations – they risk insolvency and losing personal assets like their family home.
We are proposing a Time to Recover loan program that would allow small business owners to take out a government loan to cover verifiable rent, mortgage, and tax debt accumulated due to the impact of lockdowns. Such a loan would be repayable as an agreed percentage of turnover over a negotiated timeframe.