Commercial Tenancies Code

| Posted in Business Law, Property Law

In the wake of the current COVID-19 crisis, the National Cabinet has just released the National Cabinet Mandatory Code of Conduct in relation to Commercial and Retail Leases.

The purpose of this Code of Conduct (“the Code”) is to provide both Landlords and Tenants with a guiding set of principles for commercial tenancies to assist in the response to the rapid and severe commercial impact of COVID-19.

The Code will apply in circumstances where the Tenant is an eligible business for the purpose of the Commonwealth Government’s JobKeeper programme, have a turnover of $50 million or less and be in a positional of financial distress. The Code will commence on a date to be defined, however a retrospective commencement to 3 April 2020 is not ruled out. The Code is intended to apply until the Commonwealth Government’s JobKeeper programme is no longer operational.

Some key takeaways for both Landlords and Tenants from the Code are:

  1. Landlords must not terminate leases due to non-payment of rent during the COVID-19 pandemic period;
  2. A material failure of the terms of the Lease by the Tenant, not including non-payment of rent, is not protected by the Code;
  3. Landlords must offer Tenants proportionate reductions in rent based on the Tenant’s turnover;
  4. Minimum rental waiver percentages will apply;
  5. Rental deferrals by the Tenant must be amortised for a period of up to 24 months;
  6. Reductions in statutory charges or insurance are to be passed on to the Tenant;
  7. A benefit conferred on the Landlord by its bank should be shared with the Tenant in a proportionate manner;
  8. Landlords should seek to waive recovery of any other outgoings payable by a Tenant during the period the Tenant is not able to trade;
  9. Repayments brought about due to the Code should not commence until the earlier of the COVID-19 pandemic ending or the Lease expiring;
  10. No fees, interest or other charges should be applied with respect to rent waived or deferred;
  11. Landlords must not draw on a Tenant’s security deposit for the non-payment of rent during the period of the COVID-19 pandemic;
  12. Landlords should give Tenants the opportunity to extend their Lease to allow additional time to trade during the recovery period after the COVID-19 pandemic concludes;
  13. Rental increases, except for turnover tent is to be frozen for the duration of the COVID-19 pandemic; and
  14. Tenants are not to be penalised for reduced opening hours or ceasing to trade due to the COVID-19 pandemic.

Landlords and Tenants are also now required to defer matters to mediation where agreement cannot be reached in regard to their Lease as a direct result of the COVID-19 pandemic.

Here at Duffy & Simon, our lawyers have broad knowledge and expertise with dealing with all manners of commercial leasing arrangements for both Landlords and Tenants. The Code provides certainty to parties to a commercial lease in a time where there is growing uncertainty. Just as documenting your Lease is critical to your business interests, documenting any changes to the Lease is also vital and here at Duffy & Simon we can assist you to work through your eligibility to the operation of the Code, negotiate an outcome consistent with the Code and formalise in writing whatever arrangement is finalised by the parties.