National Cabinet Mandatory Code of Conduct – SME Commercial Leasing Principles During COVID-19 (Code of Conduct)
The National Cabinet announced a new mandatory Code of Conduct to apply to retail, office and industrial commercial leases during the COVID-19 pandemic (commencing from 3 April 2020). The purpose of this Code of Conduct is to impose a set of good faith leasing principles between current landlords and eligible tenants.
The National Cabinet announced a new mandatory Code of Conduct to apply to retail, office and industrial commercial leases during the COVID-19 pandemic (commencing from 3 April 2020). The purpose of this Code of Conduct is to impose a set of good faith leasing principles between current landlords and eligible tenants.
Eligible tenants are those businesses that meet the eligibility criteria for the purposes of the Commonwealth Government’s JobKeeper programme and have an annual turnover of less than $50 million.
Businesses eligible for the JobKeeper programme are businesses that are able to demonstrate a drop (or anticipated drop) of over 30% in their turnover (of at least a month), generally by reference to the fall from the relevant month in the previous year.
The $50 million annual turnover threshold will be applied in respect of franchises at the franchisee level, and in respect of retail corporate groups at the group level (rather than at the individual retail outlet level).
The Code will be given effect through relevant State and territory legislation or regulation that is yet to be introduced.
Landlords must not terminate leases, draw on bank guarantees or security deposits, apply any interest on unpaid monies.
Landlords must provide proportionate rental reductions to tenants. With respect to rental reductions, rental waiver/rent free period must constitute at least 50% of the percentage representing the reduction in the tenant’s revenue compared to the previous year, with the remaining 50% to be applied by way of rental deferrals payable over 24 months after the ending of the COVID-19 pandemic period and any subsequent recovery period.
Landlords must pass any discounts on land tax, rates or charges to their tenants.
Landlords should agree to freeze rent increases for the period of the COVID-19 pandemic and a reasonable subsequent recovery period (turnover-based rent increases are excluded).
Tenants should be provided with the opportunity to extend their leases for a period representing any rental deferral or rent abatement period to allow tenants to repay any rental deferrals.
Landlords may not levy any penalties if tenants reduce their opening hours or cease to trade due to COVID-19 pandemic.
Tenants must otherwise comply with their obligations under their lease at all times.
Landlords and tenants must negotiate in good faith and provide accurate information.
Disputes in relation to the application of the Code of Conduct must be dealt with by way of binding mediation.
The following overarching principles of this Code will apply in guiding the above arrangements between tenants and landlords:
There are so many relevant factors, including the extent and length of government restrictions and the resilience of business through this ever-growing period of economic uncertainty.
If any landlord or tenant needs help in understanding or negotiating retail or commercial leasing relief, please contact Julie Briscoe or Hourie Khdrlarian in our property team.
Julie Briscoe
Sydney office
Level 12
77 King Street
Sydney
2000
NSW
Australia
+61 2 9234 1500
+61 2 9234 1511
Sydney
Tel: +61 2 923 41500 Fax: +61 2 923 41511 Email: spolczynski@plawyers.com.au http://www.plawyers.com.au/