First established in 1921, Finn Roache has been providing commercial advice to the business and corporate community for almost a century. Below Chris Finn and the team have complied info on some legal impacts of COVID-19.
As a lawyer of long standing, I can say that some of the issues that clients now present to members of a legal profession are unprecedented.
Two of the most commonly-queried areas involve the relationship between landlords and tenants and the position of employees who are stood down during the pandemic, and I will deal with each topic in turn.
Commercial Tenancy Stress
With the advent of almost-universal remote working for professionals (not to mention retail and hospitality closures), and the often-substantial reduction in cash flow as a result of the pandemic, both landlords and tenants of commercial premises are finding themselves under a considerable amount of stress, and both sides of the equation have been looking to governments for leadership.
So far as commercial tenancies are concerned, that has come in the form of the National Cabinet Mandatory Code of Conduct for Commercial Leases, which can be accessed from the Prime Minister's website here.
To explain the principles set out in the Code, it’s better that I give you a real-life example of what recently occurred with a client of mine.
My commercial landlord client forwarded me an email he had received from his company-tenant, stating that they had closed the office for the period of the pandemic, were working remotely, and had experienced a 40% drop in their turnover.
They requested some form of rental relief for a period of three months, with the possibility of extending that for a further period of three months.
I advised the client that he would have to offer relief pursuant to the principles laid down by the National Cabinet by way of a rental waiver and a deferral, the waiver comprising at least 50% of the total concession made, but proportionate to the income loss of the tenant. This could be as much as much as 100% of the rent normally payable.
In the event, the parties agreed to total reduction of 30% in the rent for the period of the pandemic (as that was the verifiable quantum of decrease in revenue of the tenant), comprising a 15% waiver of rent and the remaining 15% to be deferred, and repaid by the tenant over a period of not less than 24 months after the end of the pandemic, whether or not the tenant renewed the lease early next year. A minimum 24-month repayment period for deferred rent is mandatory under the Code.
Generally, landlords can’t terminate a lease during the pandemic period because of non-payment of rent and any benefits which the landlord may obtain by way of, for example, reduction of land tax, must also be passed on to the tenant. In addition, certain financial incentives are being implemented by various state governments and such programs should be accessed to ensure that every business qualifies for a claim can make it.
If the parties can’t agree, they must submit to a binding mediation process, but it is fair and reasonable for a landlord to seek evidence from the tenant of the financial stress or hardship being encountered, such that it can be easily quantified.
Ultimately, the principles are a compromise solution in circumstances where no one really is going to be the winner. They just attempt to ‘spread the pain’ more evenly in these very troubling times.
Stand Downs and the Pandemic
If an employee can’t be usefully employed due to a cause beyond the control of the employer, the Fair Work Act allows the employer to stand the employee down without pay, unless the stand down is contrary to an enterprise agreement or a contract of employment. A stand down is valid where, for example, a large proportion of the workforce is in self-quarantine and the remaining employees can’t be usefully employed or (as is the case with a number of my clients) there is a lack of supply or the business is required to close because of an enforceable government directive (for example, pubs and clubs).
The circumstances of the COVID-19 crisis fit squarely within the conduct allowed to an employer, however these provisions have been overlaid by the JobKeeper changes made to the Act made in early April 2020, which now allow an employer to temporarily alter an employee’s duties, work locations and their days and time of work. In addition, qualifying employers can claim a payment of $1,500.00 per fortnight for each qualifying employee who was employed as of 1 March 2020 and who remains employed by the employer. It’s important to remember than an employee remains employed during a stand down period.
Who is a qualifying employee and employer and the rules generally governing the JobKeeper program can be accessed via the A.T.O. here.
The JobKeeper amount is paid to the employer, who must on-pay the amount to their qualifying employees, irrespective of the amount they were previously receiving by way of wages, meaning that the employee might receive more or less than they were previously getting. If an employee is working short hours or part time, the employer must pay them either the JobKeeper payment or their normal pay for any hours they work, whichever is the greater.
An employee’s hourly base rate cannot be reduced and employees continue to accrue leave and other entitlements whether they are stood down or not. Interestingly employees who have been stood down can ask their employers to allow them to take on a second job for the duration, and their employers can’t unreasonably refuse that request.
Again, the solution arrived at is very much a compromise and not all sectors of industry or commerce will be happy with the new arrangements, but all we can do is hope that the pandemic will not outlast the six-month JobKeeper period.
The information contained in this article is general in nature and cannot be regarded as legal advice. For any specific advice, contact Chris Finn at [email protected] or Dan Georges at [email protected].
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