In response to the economic impact on small businesses as a result of the COVID-19 pandemic, the Federal Government has released a mandatory Code of Conduct to apply to all commercial leases. The respective States will have to introduce legislation in line with this Code.
The Code doesn’t apply to residential tenancies. These are to be dealt with by the State Governments.
The objective of the Code is to minimise in a proportionate manner the financial risk and cashflow impact on both landlords and tenants. In particular, the Code will apply to all tenants who are eligible for the recently introduced JobKeeper payments, and the level of rent relief will be consistent with the tenant’s reduction in turnover as assessed when applying for the JobKeeper payments.
The overarching principles of the Code are:
- Landlords are not to terminate leases due to non-payment of rent during the COVID-19 pandemic period or a subsequent reasonable period of recovery.
- Tenants must otherwise abide by their leases, and failure to do so will disqualify them from protection under the Code.
- Landlords must offer tenants proportionate reductions in rent payable in the form of waivers and deferrals, based on the reduction in the tenant’s trade.
- Complete rental waivers must make up at least 50% of the agreed rent reduction, and the balance of the reduction can be dealt with by way of rent deferrals. Such deferrals must be amortised over the balance of the lease term, or for a period of 2 years, whichever is the greater, unless otherwise agreed by the parties. If there is only a short time left to go on a lease, the tenant should be given the opportunity to extend the lease for a period equal to the deferral period.
- Landlords should share with the tenant any benefit they receive due to deferral of loan payments, or reductions in statutory charges such as land tax and council rates.
- Interest is not to be charged on any agreed rent waivers or deferrals.
- Landlords must not draw on any bonds or other securities for non-payment of rent during the period of the COVID-19 pandemic or a subsequent reasonable recovery period.
- There is to be a freeze on rent increases for the duration of the COVID-19 pandemic or a subsequent reasonable recovery period.
- Landlords are not to impose any penalties where a tenant reduces opening hours or ceases to trade due to the COVID-19 pandemic.
The parties are to negotiate in good faith to achieve mutually satisfactory outcomes.
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