National Cabinet drafts mandatory code of conduct for commercial landlords and tenants
On Tuesday 7 April, the National Cabinet released a mandatory code of conduct relating to commercial tenancies during the COVID-19 crisis.
National Cabinet Mandatory Code of Conduct - SME Commercial Leasing Principles During COVID-19
The Code will be adopted and legislated at State and Territory level. Its purpose as laid out in the document itself is:
"to impose a set of good faith leasing principles for application to commercial tenancies (including retail, office and industrial) between owners/operators/other landlords and tenants where the tenant is an eligible business for the purpose of the Commonwealth Government's JobKeeper programme."
The Code has been created as a means to generate temporary arrangements that evenly distribute the liability created by COVID-19 between landlords and tenants as businesses go into 'hibernation' or significantly downscale during the crisis. It is expected that tenants who can demonstrate financial hardship but are still able to trade will continue to pay rent in some capacity.
The Code contains a set of overarching principles intended to be used as a guideline for all parties. These principles will guide tailored temporary arrangements on a case by case basis. Some of these are outlined below.
- SME is defined as a business with annual turnover of up to $50 million
- The tenant must be able to demonstrate financial distress as a result of COVID-19 (defined by eligibility for the Commonwealth JobKeeper program - having a demonstrable loss of 30% of income)
- Landlords and tenants will negotiate in good faith
- The Code will not supersede State legislation but aims to complement it during the pandemic period (as defined by the length of time the JobKeeper program is
- Arrangements are expected to be proportionate, based on the pandemic's specific impact on revenue, expenses and profitability (there is an example of proportionality in Appendix 1 of the Code)
- The parties will assist each other when dealing with relevant stakeholders (government, financial institutions, utility companies etc) in order to achieve arrangements consistent with the objectives of the Code
- National Cabinet expects Australian and foreign financial institutions to support landlords and tenants as they work to implement the mandatory Code
- It is expected arrangements under the Code will include a reasonable recovery period.
Following the overarching principles outlined in the Code, the Leasing Principles section clearly lays out the specific requirements that must be satisfied when drafting a temporary agreement.
These include landlords being unable to terminate a lease due to non-payment of rent as a result of COVID-19, along with the requirement that tenants must remain committed to the terms of their lease and arrangements made under the Code. Failure to do so will result in the loss of protections provided by the Code. It also stipulates any repayments of rental deferrals will be amortised over the remainder of the lease or for a period of no less than 24 months, whichever is greater.
In the definition section of the Code, financial hardship, waivers, deferrals and proportionate are all outlined for those seeking clarity when creating new arrangements.
You can also visit the COVID-19 section of the ADIA website for additional resources.
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