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Commercial tenancies and the NEW Code of Conduct

Updated: Dec 15, 2020

Are you a small-to-medium-sized enterprise (SME) and commercial tenant? Has your business been economically affected by Coronavirus (COVID-19)?

If you answered yes, the new mandatory Code of Conduct for commercial leasing may offer you some relief.

What is the Code of Conduct?

Introduced by the Government, the new, mandatory Code of Conduct outlines a set of good faith leasing principles for commercial tenancies. Designed to support tenants and landlords to work together, it also helps to negotiate a fair outcome and share the financial burden. Details about how the Code of Conduct will be enforced are to be announced.

How do I know if I am eligible?

The Code applies to all tenancies suffering financial stress or hardship as a result of the COVID-19 pandemic as defined by their eligibility for the Commonwealth Government’s Job Keeper programme, with an annual turnover of up to $50 million.

What relief is available?

A number of leasing principles outlined in the Code aim to provide relief to commercial tenants economically affected by COVID-19. These include:

  • No termination of leases due to non-payment of rent during the COVID-19 pandemic period (or reasonable recovery period).

  • Inability to draw on a tenant’s security (e.g. cash bond, bank guarantee, personal guarantee) for the non-payment of rent during the COVID-19 pandemic period (or reasonable recovery period).

  • The offer of rent waivers and deferrals. This offering must be proportionate to the reduction of trade incurred as a result of COVID-19, during the pandemic period (and reasonable recovery period).

    • At least half of the relief must be in the form of a waiver.

    • You will have at least 24 months to repay deferred rent. Repayment must be amortised over either the remainder of the lease term or 24 months – whichever is the longer period.

    • The Code allows you to negotiate another, more suitable deal if preferred.

  • Benefits/reduced charges received for a property (e.g. reduced charges, land tax, deferred loan payments) must be passed on to tenants in the appropriate proportion.

  • Freeze on rent increases.

  • No penalties for reduced trading hours or ceasing to trade during the pandemic period.

  • Inability to charge interest on unpaid rent.

For full details about the commercial leasing principles during COVID-19, click here.

As a commercial tenant, what are my obligations?

Remember, it is a requirement of the Code for both the landlord and tenant to act transparently and in good faith. As a tenant, you are required to:

  • Remain committed to their lease terms (subject to any amendments). Failure to do so may mean you don’t receive the protections provided under the code.

  • Provide accurate, sufficient and timely information to help inform negotiations in accordance with the Code.

Do you need some help reviewing your commercial lease, negotiating terms or better understanding your legal obligations during the COVID-19 pandemic? Get in touch with our team for a confidential discussion.

Disclaimer | Information in this article may change as new announcements and legislation is passed down from the Government. For up-to-date Coronavirus (COVID-19) information and support for business, click here.

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