Tenants and landlords across the country are now negotiating the relevant changes to their arrangements following the release of the Commercial Leasing Code of Conduct. However, there is still some confusion about how the Code should be applied.
Once a business is eligible for the JobKeeper program, the Code will apply and both parties will be required to negotiate a temporary rent reduction arrangement in good faith. As a starting position, the rent must be reduced by the same percentage as the tenant’s reduction in revenue. For example – if a tenant’s business has suffered a 50% reduction in revenue, the landlord will be required to reduce the rent by 50% for the period of the pandemic and a reasonable recovery period.
One-half of the rent relief must take the form of a complete rent waiver, and the balance is to be dealt with as a rent deferral. The rent deferral amount is then to be repaid by the tenant over a period of 24 months or the expiry of the Lease, whichever is the greater.
The landlord and the tenant can always agree on a different arrangement and we are finding that some tenants would prefer to pay a higher amount of rent now, if it means no deferred amount is required to be paid later.
The most critical aspect of these negotiations is that, once an agreement has been reached, you must ensure that what has been agreed has been clearly and properly documented so as to avoid any dispute in the future.
If you would like to discuss the application of the Code to your commercial or retail lease, please do not hesitate to contact our specialist property law team on 9525 8688 or email Rebecca Flynn at rebecca@wmdlaw.com.au.
