COVID-19: Confirmation of the Mandatory Code for Commercial Lease Agreements

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On the 7th of April 2020, Scott Morrison announced that the mandatory code of conduct, the Commercial Tenancies Code, will be legislated and regulated by state and territory governments.

As a way to make sure commercial tenants can come out of the COVID-19 crisis still in their commercial or retail space, this code will help tenants and landlords come to an agreement in the case of financial hardship on the part of the tenant.

The agreement will involve either waivers or deferrals for rent and it applies to tenants that are a small to medium business with an annual turnover of up to $50 million.

According to www.business.gov.au, the code includes a common set of 14 principles. These include that:

  • 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)

Furthermore, the reductions will be based on the tenant’s decline in turnover to ensure that the burden is shared between landlords and tenants.

“The arrangements will be overseen by a binding mediation process administered by the state and territories,” Morrison stated.

“It’s part of our ‘hibernation strategy’ to preserve as much of the foundations and pillars of our economy through this time to enable the economy to rebuild and grow on the other side”.

“That means keeping the jobs. That means keeping the businesses. That means keeping the tenancies in place. That means keeping the leases in place and keeping the credit lines open to ensure the liabilities established or protecting against insolvencies or bankruptcies so on the other side of these crises, the economy will be able to rebound and regrow again.”

As mentioned by Morrison, if landlords and tenants are unable to come to an agreement, the next step will be mediation by an appropriate government body or tenant advisory like Niche Tenant Advisory.

To discuss your commercial lease negotiation, get in touch with Niche Tenant Advisory here.

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