SME Commercial Leasing Principles During Covid-19

//SME Commercial Leasing Principles During Covid-19

SME Commercial Leasing Principles During Covid-19

National Cabinet Mandatory Code of Conduct

The long awaited Code of Conduct has just been released by the Federal Government in response to the COVID-19 pandemic.  Due to come into force in each Australian State and Territory very shortly, the Code effectively aims to balance the commercial interests of landlords and tenants during this time of crisis and impose a regime to ‘share the burden’.

Application

The Code will automatically apply to tenants of commercial, retail or industrial premises who are in financial distress, have a turnover of $50 million or less and who are able to access the JobKeeper program.  The Code is intended to apply for the duration of the JobKeeper program, which is expected to be 6 months.

Guiding Principles of the Code

The Code refers to a number of ‘overarching principles’ which set out the objectives of the Code and which should be used to guide the parties when negotiating arrangements to see them through this difficult period.

Landlords and Tenants must negotiate in good faith and must act in an honest, open and transparent manner.  They must recognise that they share a common interest in business continuity and must discuss relevant issues / temporary arrangements together.

Landlords are required to take into account the impact of the pandemic on the Tenant’s revenue, expenses and profitability.  Any negotiated arrangement must be proportionate and appropriate, keeping in mind that an arrangement that may be appropriate for one premises may not necessarily be appropriate for another.

The Leasing Principles of the Code

In addition to the overarching principles, the Code also provides 14 specific principles which must be applied in negotiating the temporary arrangements to apply.

These are:

  1. Landlords must not terminate Leases due to non-payment of rent during the pandemic or any reasonable recovery period;
  2. Subject to their specific negotiated agreement with the landlord – Tenants must remain committed to their Leases;
  3. Landlords must offer tenants proportionate reductions in rent by waiver of waivers and deferrals, potentially up to 100% of the amount otherwise payable;
  4. Of the total relief offered by the Landlord, at least 50% must be in form of a total rent waiver;
  5. Any rental deferrals must be amortised over the greater of the balance of the Lease term 24 months;
  6. A reduction in statutory charges or insurance (i.e. land tax and council rates) must be passed on to the Tenant proportionally in accordance with the Lease;
  7. Landlords should share with Tenants any benefits received in the form of any deferral in loan payments;
  8. Landlords should waive their right to recover other expenses such as outgoings during any period when the Tenant is not able to trade;
  9. Any amounts to be repaid by Tenants should be staged over an extended period to avoid undue financial burden on the Tenant;
  10. No interest or other fees should be charged on rent waivers or deferrals;
  11. Landlords must not draw on a Tenant’s security for non-payment of rent during the period of the pandemic and a reasonable recovery period;
  12. The Tenant should be provided the opportunity to extend the Lease, on the same terms, for an equivalent period as the deferral / waiver period;
  13. Landlords agree to freeze rent increases (other than for turnover rent in retail leases); and
  14. Landlords cannot levy penalties due to reduced opening hours or cessation of trade.

If you require assistance negotiating and documenting amendments to your leasing arrangements during this difficult period, please contact our specialist Property Law Team on 9525 8688.

By |2020-04-08T06:29:05+00:00April 8th, 2020|LEGAL NEWS|