On 3 April 2020, the National Cabinet agreed to develop a mandatory code of conduct in relation to commercial tenancies, to be guided by a set of principles.
It is generally targeted at small to medium sized enterprises – that is, those with less than $50m in annual turnover. That code of conduct will need to be legislated in each state in order to give it effect.
The National Cabinet is meeting again on Tuesday 7 April 2020 to discuss the code of conduct further.
The principles that will guide the code are:
- Where it can, rent should continue to be paid. Where there is financial distress as a result of COVID-19 (for example, the tenant is eligible for assistance through the JobKeeper program), tenants and landlords should negotiate a mutually agreed outcome.
- There will be a proportionality to rent reductions based on the decline in turnover to ensure that the burden is shared between landlords and tenants.
- There will be a prohibition on termination of leases for non-payment of rent (lockouts and eviction).
- There will be a freeze on rent increases (except for turnover leases).
- There will be a prohibition on penalties for tenants who stop trading or reduce opening hours.
- There will be a prohibition on landlords passing land tax to tenants (if not already legislated).
- There will be a prohibition on landlords charging interest on unpaid rent.
- There will be a prohibition on landlords from making a claim to a bank guarantee or security deposit for non-payment of rent.
- Legislative barriers or administrative hurdles to lease extensions are to be removed (so that a tenant and landlord can agree a rent waiver in return for a lease extension).
Potential tax relief for landlords and tenants that sign up to the code is being discussed.
The above provides some additional guidance to landlords and tenants as to what is considered appropriate in the current circumstances with regards to commercial tenancies.
There are some elements that might create challenges for current negotiations regarding commercial tenancies, restricting the breadth of solutions possible.
The National Cabinet has effectively left it to “market forces” to deal with arrangements between large landlords and large tenants – although, no doubt, the above principles will be referred to in negotiations.
If you have any questions or need help navigating these challenging times, please contact a member of our Commercial Property & Development team.