April 9, 2020

With the COVID-19 pandemic unfolding, the Australian and State government has introduced (and will likely continue to introduce) many legislative changes, rules and relief packages. One such introduction is the SME Commercial Leasing Code of Conduct.

So what is the Code?

The Code sets out rules for landlords and tenants of commercial and retail leases which they must follow when negotiating rental relief. The purpose behind the Code is for any loss to be shared proportionally between tenant and landlord; there is no standard solution provided, each agreement between parties is to be tailored to each circumstance in an attempt to limit the impact the COVID-19 pandemic has had on the business.

The Code applies to businesses with an annual turnover under $50 million who are eligible for the JobKeeper package. It has been passed at a Federal level, NSW (and other States) will be introducing new State laws to bring it into effect.

What does the Code say?

During the COVID-19 pandemic period and recovery period thereafter, the Code states:

  • Landlords must not terminate leases due to non-payment of rent.
  • Tenants must remain committed to the terms of their lease.
  • Proportionate reductions in rent payable should be by way of waivers of rent payable and deferrals of payment up to the whole amount of rent ordinarily payable.
  • Rental waivers must constitute at least 50% of the total reduction in rent payable (eg. if the relief to the tenant is to reduce the rent by 20%, then at least 10% needs to be by way of waiver).
  • The landlord’s ability to provide rental waivers needs to be considered and tenants have the discretion not to enforce the 50% rental waiver requirement.
  • Payment of rental deferrals by the tenant must be amortised over the greater of the balance of the lease term or 24 months, unless otherwise agreed.
  • Any reduction in charges such as Council rates, land tax, etc and insurance premiums will be passed on to the tenant proportionally.
  • If the landlord receives any benefit under deferral of bank loans, etc, it should be passed onto the tenant proportionally.
  • If a tenant cannot trade, the landlord should waive the recovery of outgoings or other expenses during the non-trading period.
  • If the tenant is to repay rent and other charges, it should be done over an extended period of time and not start until the COVID-19 pandemic has ended or the lease has expired.
  • No fees, charges or interest should be applied with respect to rent waived or deferred.
  • A landlord must not draw on a tenant’s security for non-payment of rent.
  • Landlords agree to freeze rent increases, except for retail leases based on turnover rent.
  • Landlords may not apply penalties if tenants reduce opening hours or cease to trade due to COVID-19.

What do I do now?

If you are a commercial tenant, you should get in touch with your agent (or your landlord direct) to negotiate the terms you may need to get you through this period.

If you are a landlord, speak with your bank as to what relief they can offer before entering into negotiations with your tenant.

If you need assistance with negotiating an agreement and/or documenting the arrangements, contact Mbt Lawyers on 6648 7600 or email us at info@mbtlawyers.com.au.

You’re in expert hands.

02 6648 7600