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Opinion

Hasty crisis lawmaking leaves landlords in the lurch

Opinion

The quick introduction of laws to protect residential and commercial tenants during the COVID-19 crisis has left landlords with the rough end of the deal, argues Morry Bailes.

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Making law in the time of Covid-19 is like playing a record at the wrong speed or watching a movie on fast forward; everything is happening too quickly, but it remains necessary to legislate all the same.

How to stop an economy going down the gurgler in a few short weeks?

 That is the challenge confronting the federal and state parliaments. And whilst they have listened and continue to listen to industry groups and interested parties, they won’t get all law right.

Ordinarily a process of legislating an Act of Parliament and its regulations takes time, at least if you intend to make good law.

Almost always with law there is a risk of unintended consequences, where in the attempt to enact good policy the net cast catches something unintended, or gets the balance wrong.

That is when legal associations and other industry and interest groups try to assist by examining bills before the Parliament and offering commentary and advice.

Whilst every attempt is being made to get it right under the present dire circumstances, not every element of every law passed to address Covid-19 is going to hit the target.

 A case in point are commercial tenancies. Business has with unbridled enthusiasm supported the Jobkeeper laws, and so it should; it has given a degree of certainty at a time when uncertainty abounded.

As each day passes we have a clearer picture on the short, medium and long term economic damage that we will need to repair owing to the pandemic, but in what now seems like the early days of this crisis the Jobkeeper policy proved very important.

But it has now also been adopted as the threshold for relief for commercial tenants; those landlords and tenants subject to the Retail and Commercial Leases Act.

The recently passed South Australian Covid-19 Emergency Response (Commercial Leases) Regulations confirm that is now also the case in this state. We still await the finalisation of a code of conduct.

 The problem for landlords is that they unwittingly find themselves the meat in the sandwich, or perhaps a more apt analogy might be the hand caught in the vice.

 Landlords, as the federal Labor Party discovered to its detriment at the last federal election, make up a fair swathe of the Australian population. The myth that they are somehow the fat cats that can afford to take the hit is just that—a myth. They are invariably mums and dads that have had the wherewithal to have a go, and that includes in the retail and commercial tenancy area. In short, they are just as vulnerable as their tenants.

 So effectively it comes down to the banks. On the surface they have seemed accommodating, but a closer look reveals that whilst that may be so, they are not forgiving. Forgiving debt that is. They have graciously offered to stay repayments, but of course that is no forgiveness at all – quite the opposite.

It simply carries forward what is owed, to be added to the overall debt to increase repayments and the total sum owed. Also not all commercial debt can just be pushed back depending on how that debt has been structured, and there is a limit to a bank’s patience.

 So here is what it looks like. The tenant gets a financial break paid for by the landlord. The bank gives some leeway to the landlord but forgives nothing, and the landlord come up the loser. It has even lost its legal right to evict.

Is that law that has got the balance right?

 Of course, there enters a commercial reality to these transactions. It is pointless having a landlord nail down a retail tenant whose business is simply is unable to pay the rent. It is in everyone’s interest to have the tenant hang on waiting for better days. There is in fact a strong argument that without these laws, landlords and tenants together facing such realities would, in many cases, have sorted things out.

 All that said, we now have the Covid-19 laws, as a result of which we are and will continue to see tenants who have immediately sought to take advantage of them, or use their commercial power to achieve what may not otherwise be supported by law.

Landlords who have acquired property under one set of rules have had the goal posts moved, and some will be forced to the wall too. Let’s remind ourselves that in many of these relationships the tenant is the big fish and the landlord the minnow.

We can’t all be winners out of this awful set of circumstances. We all have to take some pain. But what we need to achieve is as good a balance as we can, and right now tenants have been given a break, the banks are losing nothing unless the landlord defaults, and the landlord is left holding the short straw.

 It all leads to a conclusion that landlords may need government help in prescribed circumstances, just like tenants. Thus far the attention has understandably been on business, but property is a big Australian business in its own right, as well as a major area of investment, and none of us want to see that dam burst.

The present Covid-19 laws seek to address the rights and responsibilities of landlords and tenants, but there is invariably three parties to these transactions, and the banks have simply been excluded from the equation. Should they be brought in to share some of the pain?

One hopes these stories have a good ending, that businesses recover and return to paying their rents to landlords, and the landlords can somehow take the hit and soldier on. But there is a fair chance that banks might find themselves ultimately foreclosing on some properties and dealing with tenants direct.

Perhaps that realisation might cause them to put a bit more skin in the game now to avoid the inevitable. If not, we may need governments to act to ensure there is not inadvertently only one loser from this legislation – the landlord.

The Covid-19 landlord and tenants laws are an example of legislation not quite striking the balance in fairness and equity that one would expect good law to achieve. It may be a wait and see situation, but we can’t wait too long.

Would it not be worth considering the next tranche of assistance, in whatever form it may take, being directed toward the landlord community? Landlords need certainty, too.

Declaration: I am variously landlord, business owner and tenant.

Morry Bailes is the managing partner at Tindall Gask Bentley Lawyers, immediate past president of the Law Council of Australia and a past president of the Law Society of South Australia.

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