16/04/2020
COVID-19 LEASING UPDATE
The National Cabinet Code of Conduct was released on 7 April to impose a set of good faith leasing principles upon landlords and tenants to aid cash flow management for both during the Covid-19 pandemic. Once enacted, the Code will apply to commercial tenancies (including retail & industrial) where the tenant is eligible & has signed up to the Jobkeeper Program.
I have had many clients ask so I’ll clarify up front that YOUR LEASE REMAINS BINDING so please don’t do anything to breach the terms of your lease!!
The mandatory principles require a landlord and tenant to negotiate the terms and conditions of their lease during the Covid-19 pandemic and for a reasonable period after.
Essentially, a landlord must not terminate a lease due to unpaid rent and tenants must remain committed to the terms of their lease subject to amendments agreed under the Code. A landlord must offer a tenant a proportionate rent reduction by waiver and deferral up to 100% based on the reduction in the tenants trade. Rental waivers must be not less than 50% of the total waiver or deferral agreed but tenants may waive this requirement. Payment of rent deferrals must be amortised over the balance of the lease term post the Covid-19 pandemic period ending (to be defined by government) and a period of not less than 24 months, whichever is greater, unless otherwise agreed. There are also requirements for landlords to share proportionately any cost savings to them in the form of land tax, loan payments etc... as well as other requirements like a freeze on rent increases.
As you can see the basis of this Code is for landlords and tenants to negotiate mutually acceptable arrangements that are tailored to each in an open, honest and transparent way. And for landlords and tenants that can’t agree disputes can be referred in Victoria to the Small Business Commission. We can help you conduct and document such negotiations. Be proactive. It could help save your business or investment.