The new code for commercial leases in Australia was released by the Morrison government last week, with the aim to keep businesses across the country in their premises.
It’s lengthy and affects Sydney commercial tenants and landlords in a variety of ways. Here are a few key components of the new code, broken down for you.
Who does the new Code apply to?
This code applies to the tenants of commercial, retail and industrial premises across Australia. They must be eligible for the JobKeeper scheme and have an annual turnover of $50 million or less.
However, there may be a grey area as the Code states that ‘its principles should apply in spirit to all leasing arrangements for affected businesses, with fair regard to the size and financial structure of those businesses’.
How long will the arrangements last?
It’s not exactly clear how long the code will remain in use, as it will last as long as the JobSeeker program is in operation. Therefore, it could be a while, considering there may well be a lengthy period of financial recovery.
Are tenants entitled to a lease extension?
Yes, they are. The Code stipulates that tenants must be provided an opportunity to extend their lease for an equivalent period to the rent waiver or deferral period.
This gives tenants the chance to remain in their Sydney office or commercial space, and adequate time to complete the rental repayments.
How long can rent deferrals last?
The code is dependent on the length of the COVID-19 pandemic and the restrictions.
Therefore, rent deferrals will last as long as the restrictions that affect businesses are in place, and likely longer. This will depend on the long-lasting effects the restrictions will have on businesses.
When can a landlord evict a tenant?
In the current climate, the landlord cannot evict a tenant who is struggling financially due to the COVID-19 pandemic.
They can however evict a tenant for the other reasons as outlined in the commercial lease agreement, as normal.
Does the rent freeze prohibit rent reviews?
The Code outlines that landlords agree to freeze any increases in rent on Sydney commercial leases. However, there is no freeze on rent reductions.
This may be relevant for a number of businesses and landlords in the near future, due to the outcome of market rent reviews that occur while the code is still in effect.
Does the new Code affect outgoings?
The new code does affect outgoings. For instance, the code stipulates that the landlord must pass on any reductions in statutory fees, to the tenant. This includes land tax and council rates.
It also specifies that the landlords should waive the repayment of other expenses that the tenant is unable to meet during this period, though this will involve a case-by-case assessment.
When must tenants repay the deferred rent?
This is currently unclear but will be within the life of the commercial lease agreement. It will likely depend on a case-by-case basis, which is why mediation is so important. Therefore, a Sydney tenant advisor for commercial leases is simply essential.
To discuss your Sydney commercial lease, get in touch with Niche Tenant Advisory here.
