The Federal and State Governments’ rent moratorium for tenants is a compassionate gesture that appears to take the moral high ground but will leave landlords languishing in a quagmire when the COVID-19 crisis is over.
In reality the ‘rent relief packages’ are highly problematic, impractical and ignores the underlying ‘domino effect’: the various complex contractual arrangements landlords have with many other parties (such as banks, real-estate agents, insurance, other service providers and creditors). For example, the landlords who outright own their investment property and rely on rental income as the only source of income stream (e.g., self-managed superfund retirees) will be disadvantaged by the PM’s ‘sympathetic’ gesture.
There are also landlords who are physically incapable of working or who solely rely on rental income to feed their family. Further, many landlords finance their rental expenditure from their rental income. If this rental income is hijacked by the government’s inapt and unclear rules that are at best, open to the vaguest of interpretation – then it will come as no surprise that landlords (irrespective of commercial or residential) will be the losers juggling legally enforceable contractual agreements with the banks/insurance/creditors to meet financial obligations and forceful rent sacrifice.
To add insult to injury, landlords’ mortgage obligations have been seemingly watered down with creative terms and buzz-words such as “rent holiday”, “rent relief” or “rent freeze” – all of which assume zero penalties or costs when a landlord is forced to negotiate with a bank or insurer in a rent default situation.
This ‘solution’ has created a mess for landlords and their tenants to sort out. Governments should refrain from making further responses which are ambiguous and unilaterally favour tenants to the detriment of landlords, without any reasonable and commensurate compensation scheme for landlords.
The government’s desperate measure to save tenants from financial distress appears to be a Robin Hood style attempt to steal from Landlord Peter to feed Tenant Paul.
This is part of a series of insights related to Coronavirus (COVID-19) and its impact on business.