On 3 April 2020, the National Cabinet agreed that States and Territories would implement a mandatory Code of Conduct (the Code) which outlines a set of good faith leasing principles for commercial tenancies who are small-medium sized businesses with an annual turn over of $50 million and who are eligible for the Job Keeper Payment*.
*Employers will be eligible for the JobKeeper payment if:
- The business has a turnover of less than $1 billion and their turnover has fallen by more than 30 per cent (of a least a month); or
- the business has a turnover of $1 billion or more and their turnover has fallen by more than 50 per cent (of at least a month); and
- the business is not subject to the Major Bank Levy.
The Code and its principles will be implemented and regulated by the individual states and territories.
The Code offers much needed relief and protection for companies in these uncertain times. Its aim is to “share in a proportionate, measured manner, the financial risk and cashflow impact during the COVID-19 period, whilst seeking to appropriately balance the interests of tenants and landlords”. This is achieved by encouraging landlords and tenants to negotiate in good faith and act in an open, honest and transparent manner and provide each other sufficient and accurate information within the context of negotiations to achieve outcomes consistent with the Code.
- Landlords must not terminate leases due to non-payment of rent during the COVID-19 pandemic period (or reasonable subsequent recovery period).
- Tenants must remain committed to the terms of their lease, subject to any amendments to their rental agreement negotiated under the Code.
- Landlords must offer tenants proportionate reductions in rent payable in the form of waivers and deferrals of up to 100% of the amount ordinarily payable (to be determined on a case-by-case basis).
- Rental waivers must constitute no less than 50% of the total reduction in rent payable under 3 above.
- Rental deferrals must be paid back over the balance of the lease term.
- Any benefits the Landlord receives from such things as deferral of loan repayments, reduction of statutory charges such as land tax and council rates should be shared with the tenant.
- No fees, interest or other charges should be applied to any rental waivers.
- Tenant should have an opportunity to extend the lease for an equivalent period of the rent waiver and/or deferral period. This is intended to provide the tenants with an opportunity to trade during the recovery period.
The Code also provides that where a Landlord and tenant cannot reach agreement the matter should be referred to the appropriate body for binding mediation.
To find out more, contact Kydon Segal Lawyers today.