“We’d have to shut our doors”: Rent relief was a saving grace for small business — but it’s about to expire

Business owner Justin O’Donnell saw his revenue dive 72% after the COVID-19 pandemic hit in March.

Thankfully, the director of Print Express on Melbourne’s Chapel Street strip was able to secure a three-month 50% reduction in rent from his landlord.

“We’ve been a tenant for 11 years and we’d never asked for anything before,” O’Donnell tells SmartCompany.

“It was a major factor in us being able to keep our heads above water.”

Three months later, as the pandemic continued to rage, O’Donnell’s landlord agreed to another two-month reduction after negotiations guided by national cabinet’s commercial tenancy code of conduct.

But now, as September approaches, O’Donnell says he’s trying to secure another two-month reduction, still unable to get much income through his business amid stage four restrictions in Melbourne.

“We’re negotiating. They’re considering a one-month extension, so basically just for September,” O’Donnell says.

“It makes it very uncertain. Don’t get me wrong, we’re appreciative for our landlord sharing the burden, but it is difficult, you have to go through the same process each time.”

When the commercial tenancy code of conduct — brought in to help small businesses negotiate with landlords during the coronavirus crisis — expires at the end of September, O’Donnell is worried he won’t be able to pay his rent.

“We wouldn’t be in a position to pay,” he says. “We’d have to shut our doors, either that or go into further debt.”

While O’Donnell is hopeful his “understanding” landlord will continue to share the pain of Melbourne’s tough coronavirus measures, it will be some time before the business, reliant on printing contracts from the hospitality and events industries, will be able to get back on its feet.

‘Saving grace’: Tenancy code supports thousands

O’Donnell is not alone. For tens of thousands of business owners across the country, the commercial tenancy code has been a saving grace for its ability to force landlords to the negotiating table and, more generally, in providing a framework for how rent concessions should be granted.

Under the framework, which has been legislated individually by state and territory governments, landlords are required to grant rent reductions and deferrals to small business tenants eligible for JobKeeper payments.

Victoria’s small business commissioner Judy O’Connell, who’s office is responsible for mediating disputes between landlords and businesses under the code, says the program has been effective for SMEs, with more than 7,500 inquiries about the code to date.

“A lot of it is about how they go about rent relief, so we’ve done a fair bit of work to make sure it’s as easy as possible to negotiate,” O’Connell tells SmartCompany.

More than 1,400 applications for mediation have been lodged under the code, 524 of which have been finalised to date with a 90% success rate.

Interestingly, 43% of mediation applications have actually come from landlords, frustrated with tenants that haven’t paid their rent over the pandemic.

“When they come to us the tenant is in a dire situation emotionally and financially, quite often they’re relieved to speak to us because they’ve exhausted negotiations with their landlords — communication started to break down,” O’Connell says.

The Victorian Small Business Commissioner has been working overtime to keep up with the caseload, finalising about 100 disputes each week, a 200% increase on what the office was previously dealing with.

It takes on average between five and six weeks to finalise a case though, underscoring the onus on businesses needing to gather and present evidence about their turnover declines while also trying to run their businesses through the pandemic.

“We’re trying to make it the minimal amount of evidence,” O’Connell says. “A BAS statement or an extract from their accounting software … we don’t want them having to provide three-years worth of profit and loss statements or balance sheets.”

If the code isn’t extended, some businesses will lose their stores

When the commercial tenancy code was unveiled earlier this year, the six-month timeline through to the end of September appeared entirely appropriate, in line with the lifespan of other support measures such as JobKeeper.

But since then some of the harshest coronavirus restrictions in the world have been imposed on Melbourne and, in response, other state governments have gradually ratcheted up their border restrictions.

JobKeeper has already been extended to March, albeit at a reduced rate, and now business groups are calling for the commercial tenancy code to be extended too.

Australian Retailers Association (ARA) chief executive Paul Zahra is pressing the case for extension with the Morrison government, saying there’s no question additional concessions need to be granted.

“The pandemic is far from over, and retailers will continue to struggle with its impacts,” Zahra tells SmartCompany in an emailed statement.

“We believe that rent relief schemes should be extended by six months in its current form, in accordance with the extension of other support measures.”

While Melbourne’s lockdown is slated to end before the code expires, there will only be a few weeks for businesses to get themselves back in shape to pay September and October rents.

That’s not to mention the prospect of paying back deferred rents accrued over the course of the code, which depending on what was negotiated for each individual business, could require amounts to be paid back before the end of the year, or as far out as 24 months.

“We can’t shy away from the fact that for some retailers the outlook remains grim — particularly for retailers in CBD locations or tourist areas that have seen foot-traffic evaporate,” Zahra says.

“Sadly, there will be business closures as business support is tapered off, but without an extension of rent relief we’ll see excess store closures and loss of jobs.”

O’Donnell says an extension would at least give businesses some certainty over their situation at a time when they’re going to be focused on getting their businesses back on track.

“There’s still no income coming in, we’ve already dipped into our savings and mortgage,” O’Donnell says.

“But it comes to a point as a business owner where you have to decide whether you want to go into further debt.”

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