Commercial rent code

On 7 April 2020, the Federal Government announced a new commercial tenancies code of conduct that will apply to small and medium-sized businesses.  The code of conduct outlines various principles that will be used by each State and Territory to draft legislation.

In the announcement, the Federal Government states: “This code applies to all tenancies that are suffering financial stress or hardship as a result of the COVID-19 pandemic as defined by their eligibility for the Commonwealth Government’s JobKeeper programme, with an annual turnover of up to $50 million (hereafter referred to as SME tenants).”

Thus, it appears that the code will apply to tenants with business turnover under $50M which have experienced a 30% or greater reduction in revenue.

There any many broad principles outlined in the Federal Government’s code of conduct.  Some of the key ones we have identified include:

  • Landlords and tenants should negotiate in good faith, provide full transparency and provide accurate information to each other.
  • Any negotiated arrangements between landlord and tenants should be on terms which are proportionate to the impact of COVID-19 on the business of the tenant and should incorporate both rent waivers (i.e. permanent reductions) and rent deferrals.
  • At least 50% of any negotiated rent reduction should be in the form of a rent waiver with the balance representing a rent deferral.  Thus for example, if the business of the tenant experienced a 30% reduction in turnover and the monthly rental paid by the tenant was ordinarily $10,000, it would be expected that the negotiated arrangement would result in a rent reduction of $3,000 per month of which at least $1,500 would represent a rent waiver and the balance of the rent reduction representing a rent deferral.
  • The repayment of any rent deferrals should be spread proportionately over the period of the remaining lease or 24 months (whichever is greater).
  • Landlords must not terminate leases due to non-payment of rent during the COVID-19 pandemic period.
  • Landlords should share the benefit of any deferral of loan repayments it receives from its financiers to their tenant.
  • Landlords should not seek to charge the tenant with outgoings during any period the tenant is unable to trade.
  • Landlords should seek to pass on any reductions they receive in statutory charges (such as land tax and council rates).
  • Irrespective of the terms of the lease, landlords shall agree to freeze rents during the COVID-19 pandemic.

We encourage all landlords and tenants to speak with their lawyers to identify their rights and responsibilities arising under the code.  Alternatively, if you have any further questions, please do not hesitate to contact your client service partner at Banks Group on (03) 9810 0700.

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