Tenants and landlords are feeling the stress of the fluid situation created by the response to the COVID-19 pandemic.
The Government-imposed shutdowns have left many businesses with a difficult choice: downsize or close their doors. One of the many factors they have to consider as tenants is the obligations to pay rent and outgoings.
At the same time, a business forced to shut down leaves a landlord without income to pay its liabilities and the financial security of a lease.
For both parties, this situation has flow-on effects for employees, managing agents, sub-contractors and more.
This is why the Government has carefully considered its response measure for lease agreements, including retail and commercial.
The new Code of Conduct for Commercial Tenancies (Code) is mandatory for all retail and commercial leasing arrangements for eligible parties during the COVID-19 pandemic period and it extends to a reasonable recovery period (Relevant Period).
The Code aims to give both tenants and landlords the flexibility to come to an agreement that will alleviate financial and other stresses for both parties.
The Code applies to any affected tenant running a business that:
- is eligible for the Commonwealth Government’s JobKeeper program; and,
- has a turnover of $50 million or less.
The Code outlines some key principles for both tenants and landlords when negotiating any amendments to their lease arrangements for the Relevant Period. They are as follows:
- A lease cannot be terminated if a tenant cannot pay rent. However, tenants must continue to meet all other terms of their lease, or they may no longer be protected by the Code.
- Landlords must offer rent reductions proportionate to the tenant’s loss in trade by waivers and/or deferrals of up to 100% of the rent payable during the Relevant Period.
- A minimum of half of the rent relief granted by the Landlord must be waived.
- Where a rent deferral is agreed, landlords must provide at least 24 months or the remainder of the lease term (whichever is greater) for tenants to repay the deferred rent.
- Landlords must pass on any savings incurred through reduction in other fees associated with property ownership (for example statutory charges), and they cannot increase rent during the Relevant Period.
- Finally, landlords cannot charge interest on rent deferrals or request use of a tenant’s bank guarantee or security deposit for any outstanding rent.
If Parties Cannot Agree
In the event the parties cannot reach an agreement, either party may apply for a binding determination through a mandatory leasing dispute resolution process.
Once enacted, the Code is likely to apply retrospectively from the 3 April 2020 and continue while the Commonwealth JobKeeper program remains in force.
You can find a copy of the Code here. In the meantime, should you require any advice or assistance with negotiations, please do not hesitate to contact our Commercial Team.
Townsville: 07 4722 0220
Ingham: 07 4776 1488