A mandatory commercial tenancies code, released on 7 April 2020 by the Federal Government, will be legislated and regulated in each State and Territory to guide landlord and tenant negotiations during the Covid-19 crisis. The Code of Conduct will bring together principles of good faith leasing and proportionality and will be overseen through a binding mediation process.

The announcement comes as the Australian Bureau of Statistics reveals more than a third of Australian businesses have re-negotiated their lease and rental agreements while a quarter have deferred loan repayments.

Eligibility

To be eligible to negotiate under the Code either party must:

  • be a business that is in a position of financial distress;
  • have a turnover of $50 million or less; and
  • be eligible to receive support under the JobKeeper program.

Under the Code, landlords must not terminate the lease or draw on a tenant’s security. Similarly, tenants must honour the lease agreement.

In relation to rent reduction, landlords will be required to reduce rent in proportion to the trading reduction suffered by the tenant.

This will be achieved via waivers and deferrals of rent:

  • waivers of rent must account for at least 50 per cent of the reduction in the rental provided to the tenant during that period; and
  • deferrals must be covered over the balance of the lease term and for no less of a period than 12 months.

By way of example, if the lease term goes for three years the cost can be remunerated over the three-year period. However, if the lease only has another six months left to run then the tenant would still have a minimum of 12 months after the pandemic period to cover the deferrals of the rental payments.

The Government expects Australian and foreign banks along with other financial institutions operating in Australia, to support landlords and tenants with appropriate flexibility as they work to implement the mandatory Code.

This publication is not intended to be a comprehensive review of all developments in the law and practice, or to cover all aspects of those referred to. Readers should take legal advice before applying the information contained in this update to specific issues or transactions. For more information or specific advice on your circumstances please contact tracey@robinsonnielsen.com.au.