Mark Bouris discusses the Australian Government’s Code of conduct for commercial lease arrangements.

Rent relief measures for coronavirus affected businesses

April 9, 2020

Prime Minister Scott Morrison announced on Tuesday that commercial lease arrangements will have to abide by a mandatory code of conduct which will see landlords need to reduce leases in proportion to the reduction in a tenant’s business revenue, due to the Coronavirus pandemic. 

In a statement announcing the measures, Scott Morrison said: “The National Cabinet agreed that states and territories would implement the…mandatory Code of Conduct (the Code), including via legislation or regulation as appropriate, to implement the principles agreed on Friday 3 April. The Code builds on the draft codes submitted by landlord and tenant representative bodies in the commercial property sector.”

The Prime Minister says the code is a set of food faith leasing principles to be applied to commercial tenancies between “owners/operators/other landlords and tenants in circumstances where the tenant is a small-medium sized business (annual turnover of up to $50 million) and is an eligible business for the purpose of the Commonwealth Government’s JobKeeper programme.

The code is not yet law, as tenancy laws are regulated by the states and territories, however the Prime Minister said the code would be legislated and regulated for in each state or territory.

Key Points to consider:

  • Landlords will be required to reduce commercial rents by same the proportion that a tenant’s revenue has decreased.
  • The tenant will have to be eligible for the job keeper program.
  • The tenant needs to have revenue less than $50 million.
  • The policy will include a mutual obligation requirement on the small and medium sized businesses and not-for-profit tenants to continue to engage their employees through the JobKeeper Payment where eligible, and if applicable, provide rent relief to their subtenants.  
  • The Government is acting as a model, by waiving rents for all its small and medium enterprises and Not-for-profit tenants within its owned and leased property.

The code covers:

  1. That leases cannot be terminated for non-payment of rent/
  2. Rent reductions will be proportional. 
  3. If your turnover is down 50%, then your rent will reduce by at least 50% – and at least 50% of that reduction must be waived entirely. The other 50% of the reduction will be a deferral, to be paid back over a minimum of 24 months or over the term of the lease. 
  4. There must also be NO fees or charges associated with rent waiver or deferral – that is, a landlord cannot charge you interest or penalties for a waiver or a deferral. 
  5. There must be no rent increases during the pandemic period, and no penalties for reducing your hours, or closing your shop or your business. 
  6. Landlords cannot call on the security (the bond or bank guarantee) for non-payment of rent for the period of the pandemic. 

Mr Morrison said the code preserves existing lease arrangements and the relationship between the landlord and the tenant: “ keeps the tenant in the property,” the PM said.

“The code brings together a set of good-faith leasing principles.”

“Landlords must not terminate the lease or draw on a tenant’s security. Likewise, tenants must honour the lease.”

Any arrangements between landlord and tenant will be binding by mediation and the mandatory code to be rolled out in each state and territory.

Principles of the Code:

The code sets out 14 principles to be common across the country. Some of these include: 

  • Landlords must not terminate leases for non-payment of rent during the COVID-19 pandemic (or reasonable recovery period).
  • tenants must stay committed to their lease terms (subject to amendments).
  • landlords must offer reductions in rent (as waivers or deferrals) based on the tenant’s reduction in trade during COVID-19.
  • benefits that owners get for their properties (e.g. reduced charges, land tax, deferred loan payments) should be passed on to the tenant (in the appropriate proportion).

More to come.

To read the full code – Click here