Code of Conduct for Commercial Leasing amid COVID-19 crisis
On 7 April, Prime Minister Scott Morrison introduced a ‘Mandatory Commercial Tenancy Code’ (Code) which he describes as a Code of Conduct that is based upon ‘good faith’ principles. This comes into effect immediately and will be legislated throughout all Australian states and territories. The aim is that the Code will complement, not replace, existing leasing legislation.
The purpose of the Code is to enable landlords and tenants to share the cash-flow burden during the current circumstances, aiming to keep premises tenanted, and have businesses back up and running once the lock-down measures cease.
Who does the Code apply to?
The Code will apply to all commercial tenancies, including retail, office and industrial, where:
the tenant or landlord is eligible for the Commonwealth Government’s "JobKeeper" allowance; and
the business’ annual turnover is below $50 million. This threshold applies to individual franchisees (rather than a whole franchise) but not to individual retail outlets that are part of a corporate group (which are assessed at the corporate group level).
What rental relief is available under the Code?
Under the Code, tenants are able to negotiate rental relief from their landlords in the form of reductions (waivers) and deferrals, of an amount proportionate to their business loss.
The rental waiver must account for a minimum of 50% of the relief, with the remaining amount to be deferred. The deferred amount is then spread over a minimum 24 month period, or the remainder of the lease term (if more than 24 months).
Landlords may not charge any fees, interest or other charges in respect of rental waivers or deferrals under the Code.
What are my responsibilities as a Landlord or Tenant under the Code?
Must not terminate tenants from their lease.
Must not fall back on tenants’ security deposits.
Must not penalise tenants for reducing trading hours or ceasing trade completely.
Should proportionately share any benefit received in the form of deferral of loan repayments, with the tenant.
Should waive payments of any outgoings such as council rates, while the tenant is unable to trade.
Must honour their lease agreement and remain committed to fulfilling the terms of their lease, subject to any negotiated amendment as per the Code.
Must not breach their lease, otherwise they will not be protected by the Code.
Must provide accurate information to the landlord.
Must work together in order to reach a mutually satisfactory outcome.
Must negotiate in good faith and maintain open and honest communication.
Must consider their situation on a case-by-case basis and be prepared to negotiate based upon their individual situation.
What if I cannot reach an agreement with my landlord/tenant?
Where a landlord and tenant cannot reach their own agreement the matter should be referred for binding mediation.
How long will the Code be operational for?
The Code comes into effect following 3 April 2020, and will continue throughout the period during which the Commonwealth JobKeeper program remains operational.
Practical next steps:
If you are a commercial tenant in financial difficulty due to COVID-19 and are struggling to pay your rent and outgoings, you must advise your landlord of your position. You might want to start drafting a rental proposal to put to your landlord, given your current position.
If you are a tenant or landlord and would like further advice or assistance negotiating with the other party, please contact us as we are happy to help you.