Monetary authorities and national governments around the world have responded in different ways to COVID-19, embarking on a range of monetary and fiscal stimulus packages to support individuals and jobs and also the businesses that employ them. This article highlights some of the key initiatives, with a particular focus on the various countries in which Cromwell operates.

Global stimulus packages

In late March in the United States, President Trump signed the Coronavirus Aid, Relief, and Economic Security Act, (CARES Act) which provided an estimated US$2.3 trillion in aid focused on major individual and business assistance and economic stimulus. This was the largest package signed into law anywhere around the world to date.

Shortly after, the European Central Bank announced a €750 billion Pandemic Emergency Purchase Programme to run until the end of the year, in addition to €120 billion support flagged earlier that month. Collectively, this amounted to just over 7.3% of Euro area GDP.

In Australia, Federal Government support, including JobKeeper and JobSeeker support as well as a range of other employment, tax and targeted business support initiatives totals approximately A$189 billion, including various financial liquidity support measures from the Reserve Bank of Australia. This equates to about 10% of GDP.

Property Code of Conduct – Australia

On 29 March 2020, as the COVID-19 pandemic was escalating, the National Cabinet in Australia agreed that short-term intervention was needed for commercial tenancies and a common set of principles to underpin and govern intervention was agreed.

The main sticking point from the initial set of principles was a suggestion that tenants could terminate leases and/or seek mediation or conciliation on the grounds of financial distress. The feedback provided by the industry was that the ability of tenants to terminate leases in such a fashion would have a substantial and detrimental impact and reverberate throughout the whole financial system.

The subsequently revised and agreed Code, minus this requirement, imposes a set of good faith leasing principles between owners / operators / other landlords and tenants in circumstances where the tenant is a small to medium sized business with annual turnover of less than A$50 million and is an eligible business for the purpose of the Federal Government’s JobKeeper programme.

In general, the Code requires landlords to provide rental relief by the same proportion as the loss of revenue experienced by the tenant. Half of this rent relief must be given in the form of a waiver, while the other half can be deferral of rent spread over the life of the lease and not less than 24 months.

It was then left to the State and Territory governments to legislate the Code and each subsequently set out how they saw the Code working. In practical terms, this has meant a patchwork of legislation with landlords having to operate differently in each state depending on the actual legislation passed. Despite this, the vast majority of negotiations have been conducted amicably with few cases needing to go to arbitration so far.

What’s happening in Europe?

Throughout Europe, governments continue to generally respect the fundamentals of contract law and common landlord / tenant rights. Some governments have provided for a small extension period for office and logistics tenants to pay rent, typically between one and three months and / or moratoriums on evictions. There has not, at this stage, generally been any enforcement of wholesale rental abatements as has happened in Australia, with the exception being Sweden.

In most of the hardest hit countries, landlords and tenants are generally sitting down to agree a joint way forward. Landlords are aware that it makes more sense for them to offer a deferral for a window of time than it does to be left with an empty asset and then have to try and re-lease in a difficult economic environment.

Tenants, in turn, do not generally have the right to not pay rent, even if, in some countries, they are temporarily safe from eviction. Requests that have been received by Cromwell’s teams in Europe have generally been from tenants who have continued operating and wish to move to monthly payments for cashflow purposes, or who require partial or short-term deferrals of one to three months.

Cromwell is in close contact with tenant-customers and those we manage on behalf of our investors. Our local property teams are working through the various ways through which we may be able to help them through this uncertain period.

Global map