The National Cabinet has announced that the purpose of the COVID-19 Commercial Leasing Code of Conduct (“the Code”) is to impose a set of good faith leasing principles for application to commercial tenancies (including retail, office and industrial).
The Code applies to businesses that:
- are eligible for the government’s JobKeeper Payment Scheme; and
- have an annual turnover of up to $50 million.
For franchises, the $50 million annual turnover will be applied at the franchisee level.
The Code will be given effect through the relevant legislation of each state and territory. It is intended to complement the state or territory’s legislation during the COVID-19 pandemic period and a reasonable recovery period.
The following principles should be applied by landlords and tenants on a case by case basis:
- Landlords must not terminate leases for non-payment of rent during the COVID-19 pandemic period (or a reasonable subsequent recovery period).
- Tenants must remain committed to their lease. Material failure to abide by substantive terms of their lease will forfeit any protections under the Code.
- Landlords must offer tenants proportionate reductions in rent payable in the form of waivers and deferrals, based on the reduction of the tenants trade during the COVID-19 pandemic period and a subsequent reasonable recovery period.
- Rental waivers (rather than deferrals), 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. However, regard must also be had to the landlord’s financial ability to provide such additional waivers.
- Tenants may waive the requirement set out in 4 above.
- The payment of rental deferrals by the tenant must be amortised over the balance of the lease term or for a period of 24 months, whichever is the greater (unless otherwise agreed between the parties).
- Any reductions in statutory charges (such as land tax or council rates) or insurance must be passed on to the tenant in the appropriate proportion applicable under the terms of the lease.
- A landlord should also share with the tenant in a proportionate manner, any benefit it receives due to the deferral of loan payments.
- A landlord should where appropriate waive the recovery of any other expense (or outgoing payable) by a tenant, under lease terms, during the period that the tenant is not able to trade.
- If the tenant and the landlord negotiate an arrangement under the Code which requires the tenant to repay monies to the landlord, the repayment should occur over an extended period and should not commence until the earlier of the COVID-19 pandemic ending (taking into account a reasonable recovery period) or the lease expiring.
- A landlord must not draw on a tenant’s security for the non-payment of rent (such as a bank guarante or bond) during the period of the COVID-19 pandemic and a reasonable recovery period.
- A tenant should be given the opportunity to extend its lease for an equivalent period of the rent waiver and/or the deferral period, so that the tenant has additional time to trade on existing lease terms.
- A landlord should freeze any rent increases (except for turnover rent) for the duration of the COVID-19 pandemic and a reasonable recovery period, notwithstanding any other arrangements between the landlord and the tenant.
- A landlord must not apply any penalities if a tenant reduces opening hours or ceases to trade due to the COVID-19 pandemic.
Where landlords and tenants cannot agree on leasing arrangements (as a direct result of the COVID-19 pandemic), the matter should be referred by either party to an applicable retail or commercial leasing dispute resolution process for binding mediation.
The full release by the National Cabinet can be read here.
Contact Us if you have any questions about the Commercial Leasing Code or for any assistance in negotiating lease terms
The information in this article is general in nature and is not intended to address the circumstances of any person or other entity. Although we do our best to provide timely and accurate information, we do not guarantee that the information in this article is accurate or that it will continue to be accurate in the future.
- Posted by Ana Haarsma
- On April 16, 2020
- 0 Comments