You do not have Javascript enabled COVID 19 Commercial Leasing - Code of Conduct - Trinity Law
Apr 08, 2020

COVID 19 Commercial Leasing – Code of Conduct

Contact: John Irvine

The Federal Government has now released the Code outlining the mandatory relief landlords are to provide their affected SME tenants and which is about to be passed into law by each State and Territory …

Minimum relief to be provided

Landlords must offer tenants a proportionate reduction in rent payable in the form of rent waivers and deferrals for the period of the JobKeeper stimulus package. More specifically:

  • Landlords must forever waive (and cannot therefore recoup) at least 50% of the total relief provided (see below), however tenants may voluntarily opt out of this requirement by agreement.
  • Landlords must defer payment of 50% of the total relief provided, with the amount deferred to be amortised (fee and interest free) and repaid over the balance of the lease term or a minimum period of 24 months, whichever is greater (unless otherwise agreed).

Other key aspects of the Code

In addition, the following temporary measures have also been mandated:

  • Leases cannot be terminated during the relief period for non-payment of rent, nor can tenant security be called on.
  • Outgoings and other charges otherwise payable under the lease should not be charged by the landlord.
  • Landlords should pass on to tenants (on a proportionate basis) any reduction in statutory charges or loan repayments.
  • Landlords cannot penalise tenants for reducing opening hours or ceasing to trade.
  • Tenants must not breach the substantive terms of the lease, which are to otherwise continue to apply.
  • Tenants should be provided with an opportunity to extend the term of their lease for an equivalent period to any rent waiver and/or deferral period granted.
  • Landlords must freeze rent increases for the duration of the COVID-19 pandemic (with the exception of turnover rent).
  • Where the parties cannot reach agreement, they are to submit to a binding mediation process.
  • A ‘Code Administration Committee’ will be established in each jurisdiction to promote awareness the code and monitor its operation.

How relief can be structured

To illustrate the above, if a qualifying tenant has experienced a 30% reduction in turnover, the landlord must provide a 30% cash flow reduction in rent otherwise payable under the lease, noting:

  • at least one half, i.e. 15% of the total rent relief, must be a rent waiver (unless the tenant has agreed to a lesser amount).
  • the other will be a deferral of rent, which is to be repaid over a minimum of 24 months, unless a shorter period is agreed.

Qualified tenants

To fall under the new mandatory code, tenants must be eligible for the JobKeeper programme, i.e.:

  • where estimated turnover will fall or has fallen by 30 percent or more as a result of Covid-19; and
  • have an annual turnover of $50 million or less.

Overarching Principles

The  Code also sets out the following principles to guide parties entering into negotiations for temporary leasing arrangements (recognising that the stated objective of the code is to mitigate the impact of the pandemic on the tenant, ensure business continuity, and facilitate resumption of normal trading activities during recovery period):

  • Parties should act in good faith.
  • Both landlords and tenants will provide sufficient and accurate information during the negotiation. This includes internal accounts and financial information provided to or received from financial institutions.
  • Landlords must take into account the impact of COVID-19 on the revenue, expenses, and profitability on the tenant and negotiate a proportionate outcome.
  • Landlords bear the ultimate risk of default and must not seek to permanently mitigate that risk.
  • All leases must be individually negotiated, considering the extent of financial hardship suffered by the tenant, and duration of the lease term remaining.
  • The Competition and Consumer Act applies.
  • Landlords should modify their approach if the tenant is in administration or receivership.

For further information or specific advice, please contact John Irvine or another member of the Commercial Group at Trinity Law on (02) 6163 5050 or email your query john.irvine@trinitylaw.com.au

The information in this document represents general information, and should not be relied for your specific circumstances. If you require legal advice and assistance on the matters contained or associated in this document you should contact Trinity Law. Subject to the limits of the law, Trinity Law disclaims any liability on persons relying on this document.

Sorry, the comment form is closed at this time.