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Home > Information Sheets > COVID-19: Commercial, retail, industrial leases


  1. In this update, we look at the following:
    • Compliance risks for self managed superannuation fund landlords offering rent reductions or waiver
    • Residential leasing update
    • Commonwealth Government’s SME Commercial Leasing Principles During COVID-19

Compliance risks for self managed superannuation fund landlords offering rent reductions or waiver

This section is guidance only for owners of small businesses who have purchased their business premises through their self managed super fund.

Many CQ SME’s own properties in their self superannuation funds for use by their business. The business pays a rental to the SMSF. However, there are some compliance risks that come with this type of structure. As it is a related party transaction, there are steps that you must take to comply with various laws to ensure that the transaction is, essentially, an arms length transaction. Principally, this means that the rental must be for fair market value and the lease must document the transaction.

However, with COVID19, some businesses may already be feeling financial pressure and will be looking at the rent on their SMSF as an “easy” way to reduce expenses. Technically, a rent reduction outside of the ordinary terms of the lease would be difficult to substantiate as a step that is compliant with superannuation laws. However, the Australian Taxation Office has recently declared that it will not take action re non compliance for rent reductions to related parties if:

  • Any changes to leases by SMSFs, and the reasons for them, are properly documented.
  • The ATO now specifically includes this in their no action position, so the appropriate documentation is absolutely vital. The ATO acknowledges this can be ‘with a minute or a renewed lease agreement or other contemporaneous document’.
  • The documentation SMSFs should have in place includes:
    • an outline of why the rent relief is appropriate (with figures)
    • a formal amendment to the existing lease terms

Failure to have the documentation could jeopardise accessing the ATO’s no action position resulting in penalties and fines.

This is general guidance only. Before making any decision, you must seek legal and financial advice.

Residential leasing update

We have provided previous updates about residential leasing flagging dangers particularly for landlords regarding the proposed QLD legislation. The proposed legislation may have had a huge impact on cashflow for QLD residential property investors. Fortunately, the REIQ ran a successful campaign and turned around many of the negative proposals. We note:

  • Rent payments and unpaid rent: Property owners and tenants can now agree on the terms of reduced rent and deferred repayment requirements.
  • Financial hardship requirements: The combined income of tenant/s must have reduced by more than 25% as a direct result of COVID-19 or where the rent amount exceeds 30% of income/s and tenant/s cannot afford to pay the rent.
  • Substantiation of financial hardship: Tenants must provide the same level of proof of income as is required at the start of the tenancy to seek a rent reduction.
  • Entry requirements: The Government will provide clear guidance to ensure access for essential repairs and maintenance, the sale of a property and virtual inspections.
  • Break lease: To qualify for the Government’s break lease provisions, tenant/s must be in severe financial hardship which is defined as a 75% reduction in combined tenant/s income and have less than $5,000 in savings.
  • Extension of a tenancy: A fixed term tenancy will be automatically extended to 30 September 2020 unless agreed otherwise.

For full particulars about the impact of COVID19 on residential renters, stay up to date at the Queensland Goverments COVID19 Residential Rental Hub.

Commonwealth Government’s SME Commercial Leasing Principles During COVID-19


As you may be aware, the Commonwealth Government released a Mandatory Code of Conduct for Commercial, Retail and Industrial Leasing. It does not apply to residential leasing.

Operational Period of Code of Conduct.

  1. The exact commencement date has not been set. That date may be different in each state and territory but will be a date following 3 April 2020. The Queensland Government, as of 24.04.2020 has not yet adopted the Code so it does not yet apply in Queensland. In our view, there is a likelihood that the government may start the operation of the Code as early as 3 April 2020. This could have disastrous effects for people who have made decisions without respect to the Code (however, the QLD government has already looked to make some very questionable decisions re leasing restrictions).
  2. The end date is subject to change as it is for the period during which the JobKeeper Payment program remains operational.

The code of conduct can only be accessed by a tenant that is:

  1. commercial tenant, including that of retail, office and industrial premises (it does not apply to residential tenancies); and
  2. an SME tenant: being eligible for the JobKeeper Payment program, having an annual turnover of up to $50 million.

The objective of the Code is to spread the cost of COVID19 fairly between landlords and tenants and reduce bargaining inequity and impact on the economy. In negotiating and enacting appropriate temporary arrangements under the Code, the Leasing Principles should be applied as soon as practicable on a case-by-case basis.

The detailed Overarching Principles and Leasing Principles can be found here.

If the code applies, the landlord:

  • must not terminate the lease due to non-payment of rent during the COVID 19 pandemic period (or reasonable subsequent recovery period – note this latter term is undefined at this time).
  • must offer the tenant a proportionate reduction in rent payable in the form of a waiver and deferrals of up to 100% of the amount ordinarily payable, on a case-by-case basis, based on the reduction in the tenant’s trade during the COVID-19 pandemic period and a subsequent reasonable recovery period.
    • the rental waiver must constitute no less than 50% of the total reduction in rent payable over the COVID-19 pandemic period and should constitute a greater proportion of the total reduction in rent payable in cases where failure to do so would compromise the tenant’s capacity to fulfil their ongoing obligations under the lease agreement.
    • no fees, interest or other charges should be applied with respect to rent waived and no fees, charges nor punitive interest may be charged on deferrals.
  • must not draw on a tenant’s security for the non-payment of rent (be this a cash bond, bank guarantee or personal guarantee) during the period of the COVID-19 pandemic and/or a reasonable subsequent recovery period.
  • where appropriate, should seek to waive recovery of any other expense (or outgoing payable) by a tenant, under lease terms, during the period the tenant is not able to trade.
  • should seek to share any benefit it receives due to deferral of loan payments, provided by a financial institution as part of the Australian Bankers Association’s COVID-19 response, or any other case-by-case deferral of loan repayments offered to other landlords, with the tenant in a proportionate manner.
  • negotiated arrangements necessitating repayment should occur over an extended period. no repayment should commence until the earlier of the COVID-19 pandemic ending (as defined by the Australian Government) or the existing lease expiring, taking into account a reasonable subsequent recovery period.
  • must pass on any reduction in statutory charges (e.g. land tax, council rates) or insurance to the tenant in the appropriate proportion applicable under the terms of the lease.
  • should permit the tenant to be provided with an opportunity to extend its lease for an equivalent period of the rent waiver and/or deferral period. This is intended to provide the tenant additional time to trade, on existing lease terms, during the recovery period after the COVID 19 pandemic concludes.
  • agrees to a freeze on rent increases (except for retail leases based on turnover rent) for the duration of the COVID-19 pandemic and a reasonable subsequent recovery period, notwithstanding any arrangements between the landlord and the tenant.
  • may not apply any prohibition on levy any penalties if the tenant reduces opening hours or cease to trade due to the COVID-19 pandemic.

See Appendix I on page 7 of the Code for more examples and principles generally (the above is a summary of some of the expectations). The circumstance of each landlord, SME tenant and lease are different, and are subject to negotiation and agreement in good faith.

If the Code applies, tenants:

  • must remain committed to the terms of their lease, subject to any amendments to their rental agreement negotiated under this Code. Material failure to abide by substantive terms of their lease will forfeit any protections provided to the tenant under this Code.
  • must also have regard to the landlord’s financial ability to provide such additional waivers. Tenants may waive the requirement for a 50% minimum waiver by agreement.
  • understands that the landlord reserves the right to reduce services where the landlord waives recovery of any other expense (or outgoing payable), under lease terms, during the period the tenant is not able to trade.

What happens if the tenant and landlord cannot agree (as a direct result of the COVID-19 pandemic):

  • the matter should be referred for, and subjected to, binding mediation.
  • noting tenants and landlords must not use mediation processes to prolong or frustrate the facilitation of amicable resolution outcomes.

What happens if the Code applies and the tenant was in default prior to COVID19:

  • The Code appears to only relate to defaults occurring as a result of COVID19. At this stage, it does not appear that it applies in relation to defaults or issues occurring prior to the commencement of the Code. For your individual circumstances, it is best to seek advice.

What happens if the Code does not yet apply, the tenant is financially struggling and the lessor is not negotiating:

  • Depending on the terms of the particular lease, there may be some possiblity for relief under force majeur clauses or other clauses in the lease. It is best to seek legal advice of the lease.
  • If the Code appears it may apply to the tenant, it may be appropriate to write to the landlord and seek a concession on the basis that the code will be coming into effect soon and may have a retrospective effect.
  • If you have written to the landlord and set out your position and the landlord does take steps to terminate your lease, you may be able to seek injunctions and other measures.
  • Before taking any steps, particularly when navigating such a tricky legal space, it is best to seek legal and financial advice.

What happens if the tenant is merely refusing to pay rent and possibly does have capacity to pay?

  • Some tenants (particularly large corporates and franchises) have blatantly refused to pay any rent or outgoings.
  • This is causing significant financial stress for some landlords.
  • Depending on the terms of the lease, this may constitute a repudiation or default of the lease and entitle the landlord to terminate the lease.
  • In these circumstances, writing to the tenant and attempting to negotiate some form of payment is preferable.
  • Depending on your commercial situation, it is unlikely that another tenant will be found within the next few months and so a termination may not strictly be the best commercial decision. However, a tenant manipulating the situation to their benefit may not be desirable either.


In all respects, you should seek legal advice before relying on anything in this update. This document is general guidance only and must not be relied on to make any decisions.