Commercial Leases and COVID-19

After nipping around the edges of the issue for the last week, yesterday the Prime Minister announced the outcome of the National Cabinet deliberations on the effect of COVID-19 on the commercial leasing sector – a mandatory code of conduct for tenants and landlords.  While one of the overarching principles is that landlords and tenants share a common interest in working together, and should negotiate in good faith in an open, honest and transparent manner, there is now a framework for these discussions.

While this code still needs to be implemented separately by each of the States and Territories (which you would expect to occur in the coming days), it provides some much-needed clarity in this time of uncertainty.

Enough intro Brendan – what does it actually say?

While there is still some scope for variations between each jurisdiction (since as noted it needs to be implemented separately by the individual State and Territory Governments) it provides a series of principles which should remain consistent across the board.  There are a total of 14 leasing principles included in the code, with the key take-aways being:

  • Landlords must not terminate leases for non-payment of rent during the pandemic period (or a reasonable subsequent recovery period).
  • Tenants must remain committed to the terms of their lease (subject to any amendments negotiated with the Landlord). Tenants who breach the substantive terms of the lease (such as?) risk losing the protections offered under the code.
  • Landlords must offer tenants reductions in rent in the form of waivers and deferrals proportionate to the reduction in the tenant’s trade, on a case by case basis.
  • Payment of rental deferrals by the tenant must be spread over the balance of the life of the lease (but not less than 24 months).
  • Where a tenant is paying statutory charges (e.g. land tax, council rates) or insurance as part of their outgoings, any reduction in those charges must be passed on to the tenant.
  • Landlords must not draw on a tenant’s security for the non-payment of rent during the pandemic period (or a reasonable subsequent recovery period).
  • Except for retail leases where rent is based on turnover, there will be a freeze on rent increases for the duration of the pandemic period (or a reasonable subsequent recovery period).
  • Landlords may not penalise tenants if they reduce their opening hours, or cease to trade entirely, during the pandemic period.

If you want to read the code of conduct in full, it can be found on the Prime Minister’s website at: https://www.pm.gov.au/sites/default/files/files/national-cabinet-mandatory-code-ofconduct-sme-commercial-leasing-principles.pdf

If you have further questions or are uncertain about your lease at this time, please contact us, we are here to help.