The Prime Minister announced new government protections for commercial tenants on 7 April 2020.
In recognition that commercial leases can differ greatly from one agreement to another, federal and state governments have agreed to introduce a Mandatory Code of Conduct for all landlords.
Negotiations will now have to occur between landlord and tenant in good faith, using the following (simplified) principles:
- Landlords cannot terminate leases due to non-payment of rent during the pandemic period or reasonable subsequent recovery period.
- Tenants must remain committed to the lease agreement subject to amendments negotiated under the new Mandatory Code of Conduct.
- Landlords must offer proportionate reductions in rent payment in the form of waivers/deferrals of up to 100% of the amount ordinarily payable, on a case-by-case basis, based on the tenant’s reduction of trade.
- Rental waivers must be at least 50% or more based on rule #3 above.
- Payment of rental deferrals must be amortised over the balance of the lease period, and for a period of at least 24 months unless otherwise agreed.
- Any reduction(s) in statutory charges (eg land tax, council rates) or insurance will be passed onto the tenant proportionately.
- Landlords should share any benefits received due to deferral of loan repayments with the tenants in a proportionate manner.
- Landlords should waive recovery of any other expenses (eg outgoings) by a tenant during the period where the tenant is unable to trade.
- If negotiated arrangements necessitate repayments, this must occur over an extended period with repayments to commence after the pandemic period.
- No fees, interest or other charges should be applied with respect to rent waived in principles #3 and #4 above and no fees, charges nor punitive interest may be charged on deferrals in principles #3, #4 and #5 above.
- Landlords must not draw on a tenant’s security for the non-payment of rent (eg cash bond, bank guarantee or personal guarantee) during the pandemic period and/or a reasonable subsequent recovery period.
- The tenant must be allowed to extend its lease for an equivalent period of the rent waiver and/or deferral period outlined in item #2 above.
- Landlords must freeze on rent increases (except for retail leases based on turnover rent) for the duration of the pandemic period and a reasonable subsequent recovery period, notwithstanding any arrangements
between the landlord and the tenant. - Landlords may not apply any prohibition on levy any penalties if tenants reduce opening hours or cease to trade due to the pandemic.
PUBLISHED: 8 APRIL 2020