The Federal Government has announced that States will implement a mandatory Code of Conduct in relation to commercial tenancies in place between landlords and their tenants.
The Code will remain in place between 3 April 2020 and for the duration of the JobKeeper payment.
You may sit on either side of the fence, for example you may be a landlord relying on income to support your retirement or loan positions, or you could be a business owner seeking assistance so that you can manage your cash flow to ensure a continuing business, and therefore the ability to pay rent, once the crisis has passed.
Whichever boat you are in, please contact us here to discuss your options under this new Code.
It is important to note that WA Parliament will need to pass laws to give effect to the Code, and they are due to sit again on 15 and 16 April. Until then, the Code is not enshrined in law and tenants and landlords would continue their negotiations in good faith.
- Tenant has turnover of less than $50m
- The tenant is eligible for the JobKeeper payment, that is they have experienced a reduction in revenue of 30% or more
- The $50m test is applied at the Franchisee level, if the tenant is a franchise owner
Principles for negotiating rent
The principles are set out in a Code of Conduct document that you can find here: https://www.pm.gov.au/sites/default/files/files/national-cabinet-mandatory-code-ofconduct-sme-commercial-leasing-principles.pdf
In brief, they are set out below.
- Landlords must not terminate leases due to non-payment of rent during the COVID-19 pandemic period
- Tenants must remain committed to the terms of their lease, subject to any amendments to their rental agreement negotiated under this 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, on a case-by-case basis, based on the reduction in the tenant’s trade during the COVID-19 pandemic period and a subsequent reasonable recovery period.
- Rental waivers must constitute no less than 50% of the total reduction in rent payable under principle #3 above over the COVID-19 pandemic period and should constitute a greater proportion of the total reduction in rent payable in cases where failure to do so would compromise the tenant’s capacity to fulfill their ongoing obligations under the lease agreement. Regard must also be had to the Landlord’s financial ability to provide such additional waivers. Tenants may waive the requirement for a 50% minimum waiver by agreement.
- Payment of rental deferrals by the tenant must be amortised over the balance of the lease term and for a period of no less than 24 months, whichever is the greater, unless otherwise agreed by the parties.
- Any reduction in statutory charges (e.g. land tax, council rates) or insurance will be passed on to the tenant in the appropriate proportion applicable under the terms of the lease.
- A landlord should seek to share any benefit it receives due to deferral of loan payments
- Landlords should where appropriate seek to waive recovery of any other expense (or outgoing payable) by a tenant, under lease terms, during the period the tenant is not able to trade.
- If negotiated arrangements under this Code necessitate repayment, this should occur over an extended period in order to avoid placing an undue financial burden on the tenant.
- No fees, interest or other charges should be applied with respect to rent waived in principles #3 and #4 above and no fees, charges nor punitive interest may be charged on deferrals in principles #3, #4 and #5 above.
- Landlords must not draw on a tenant’s security for the non-payment of rent (be this a cash bond, bank guarantee or personal guarantee) during the period of the COVID-19 pandemic and/or a reasonable subsequent recovery period
- The tenant should be provided with an opportunity to extend its lease for an equivalent period of the rent waiver and/or deferral period outlined in item #2 above. This is intended to provide the tenant additional time to trade, on existing lease terms, during the recovery period after the COVID-19 pandemic concludes.
- Landlords agree to a freeze on rent increases (except for retail leases based on turnover rent) for the duration of the COVID-19 pandemic and a reasonable subsequent recovery period, notwithstanding any arrangements between the landlord and the tenant.
- Landlords may not apply any prohibition on levy any penalties if tenants reduce opening hours or cease to trade due to the COVID-19 pandemic.
We will be continuing to monitor the quickly evolving landscape and keep you updated but if you have any questions regarding the above you can contact us here.
Thank you for your continued support and we hope you all stay safe.