Commercial Leasing – National Cabinet Mandatory Code of Conduct

The Commonwealth Government released the mandatory Code of Conduct (Code) for commercial leases on 7 April 2020.

The National Cabinet agreed that the Code is to be implemented by all States and Territories to address the impact of COVID-19 on commercial leases throughout Australia.

The Code:

• sets out good faith leasing principles for negotiations between property owners and tenants experiencing financial stress or hardship resulting from the COVID-19 pandemic;
• applies where the tenant is a small to medium sized business (with an annual turnover of not more than $50 million) and who is eligible for the Jobkeeper programme; and
• will come into effect when legislation is passed by the States and Territories being a date following 3 April 2020.

The Code sets out a number of principles for negotiating temporary arrangements between property owners and tenants. Below is a simple summary of the principles:

1. Property owners cannot terminate leases for the non-payment of rent during the COVID-19 pandemic period or a reasonable recovery period subsequent to the pandemic period.
2. Subject to any rent adjustments negotiated under the Code, a Tenants must comply with their lease.
3. Property owners must offer their tenants a proportionate reduction in rent. This is to be in the form of a waiver and deferral of up to 100% of the rent that would ordinarily be payable. Rent waivers must constitute at least 50% of the total rent reduction.
4. The repayment of any deferred rent must, unless otherwise agreed by the parties, be amortised over the greater of:

(a)         the balance of the term of the lease; and

(b)         24 months.

5. Property owners must pass on any reduction in statutory charges, such as land tax, council rates, or insurance to the tenant in the relevant proportion under the terms of the lease.
6. Property owners cannot impose any fees, interest or other charges with respect to the deferral of rent.
7. Property owners cannot draw on tenants’ security (such as a bond, bank guarantee or personal guarantee) for the non-payment of rent during the period of the COVID-19 pandemic or a reasonable recovery period subsequent to the pandemic period.
8. Tenants should be given an opportunity to extend their lease period equal to the waiver and/or deferral of rent period.

The Code also sets out a number of principles which are designed to encourage property owners and tenants to negotiate in good faith with a view to preserving and returning to the status quo which existed prior to the COVID-19 pandemic.

It is imperative that both property owners and tenants are fully aware of their rights and obligations under their current lease and how those obligations will be impacted by the Code when it comes into effect.

For a full copy of the Code click in the link below:

https://www.pm.gov.au/sites/default/files/files/national-cabinet-mandatory-code-ofconduct-sme-commercial-leasing-principles.pdf

Whether you are a property owner or a tenant, if you need any assistance with your lease, please contact us.