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COVID-19 Business Continuity – 7th April

Hi, it’s Ashley Thomson with the COVID-19 Business Continuity update for Tuesday 7th April. In today’s update I’m covering the extra detail on commercial tenancies coming out of the PM’s press conference today. I’ll also look at the reducing work hours and the care that needs to be taken.

In today’s briefing:
1. Commercial tenancies
2. Update to Fair Work to enable reduced work hours
1. Commercial tenancies

Today the commercial tenancies code for COVID19 impacted businesses was announced. The mandatory code will apply to Tenfold clients who are or become eligible for the JobKeeper program (i.e. where your business’ revenue has fallen by 30%).

Under the code:

  • Commercial landlords are legally required to engage with tenants who meet the criteria about rental arrangements.
  • Landlords must reduce rent in proportion to the reduction in the tenant’s business.
  • Rent reduction can be a waiver (i.e. rent will not payable by the tenant) or a deferral in rental payment. Waivers will have to account for at least 50 per cent of the reduction in rent. Deferrals (i.e. rent that is still payable but pushed out) must be spread over the remaining time on a lease and for no less than 12 months. Landlords will not be able to charge interest on unpaid rent.
  • Rent increases will be frozen.
  • Landlords must not terminate a lease or draw on securities (e.g. bond or director’s guarantee).
  • Tenants must honour the lease.
  • There will be a binding mediation process.
  • Landlords will not be able to enforce penalties on tenants who stop trading or reduce opening hours – this mostly relates to businesses operating in shopping centres.
  • Legislative and administrative process relating to lease extensions will be removed.

What this means for Tenfold clients that are eligible for JobKeeper:
Your landlord must reduce your rent by the proportion that your revenue has decreased (minimum of 30%). At least half of that rental reduction must be a waiver of rent. The balance of the discount can be a deferral.

For example, if your rent is normally $10,000 per month, and your revenue for March 2020 decreased by 40% (compared to March 2019), your landlord must reduce your rent by 40% – you’d be entitled to a rent reduction of $4000. At least half of that must be waived (you won’t have to pay $2000) and the remaining $2000 can be deferred, without interest or penalties, and paid over the remaining term of your lease.

I want to point out something important here: Only half of the rent reduction will be a free-kick; you will still be obliged to pay all deferred amounts down the track. The new code allows at least a year to make catch up payments on any deferred rent.

What this means for Tenfold clients that are NOT eligible for JobKeeper:
If your revenue has decreased but not enough to qualify for JobKeeper, there are still things you can do:

  • Speak with your coach about plans and options for negotiating better rental terms. You still have some leverage in this current climate to negotiate a deal outside the government mandated code.
  • If appropriate, put your landlord on notice that you expect at some point soon you will qualify for JobKeeper and you will be entitled to the mandated rent reduction.

This was the second major cost reduction area, after labour, that I identified in the email to Tenfold clients on 1st April and I believe is a fair sharing of the pain between landlords and tenants.

————————————————2. Update to enable reduced work hours, changes to role and use of annual leave
The Fair Work Act will be changed to allow businesses to reduce an employee’s work hours without having to go through some of the specific endorsement processes that certain awards and agreements require.

The changes will also allow you to make an employee use up their annual leave and they will still count as being employed for you to receive the JobKeeper payment. (However, they can’t be forced to take their final two weeks’ leave.)
These amendments to Fair Work are designed to give employers more flexibility for the key purpose of enabling them to keep their business going and keep people employed, but we know that the Fair Work Commission and the unions will not allow this to be free-for-all.

You still need to be very careful when reducing an employee’s hours to ensure you are acting within these parameters:

  • Consult with your employee about the changes to their hours. Treat them fairly and explain what the reduced hours will mean to their role and the business.
  • Once you have reached an agreement with each employee on the reduced hours, put it in writing and have them sign a copy to acknowledge the change.

There are a few things to note:

  • you can change their ordinary days of work (for example, you can ask a part timer to work Wednesday instead of Tuesday);
  • you can’t change their hourly rate;
  • you can’t require them to work more hours than they will be paid for.

As you can see, it’s still a complex process to make changes to employees’ work and hours.  Speak with your coach and they will assist you to assess the most appropriate way to handle this so you get agreement with your staff and protection for your business.

Now that we have clarity on commercial tenancies, your coach can plot that into your COVID19 financial model.

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