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COVID-19: Commercial Tenancy Code of Conduct

03/04/2020by Brad Ferris
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To reduce friction between the landlords and tenants during such time of crisis, the Australian Government released a conduct code on 7th April for SME commercial tenancies. In conclusion, the principles require the tenants to keep on paying rent if they can; and in case of financial distress due to COVID-19, the tenants and landlords must negotiate for a mutually convenient agreement.

Further details on the code include the following:

  • The code only applies when tenant is financially distressed, for example, they are eligible for aid through the JobKeeper program.
  • Both the tenant and landlord must honor the lease terms, otherwise, they will lose their rights under the code.
  • Landlord must not end lease agreement due to non-payment of rent.
  • Total reduction in rent will be proportional to reduction in turnover during the COVID-19 pandemic, in terms of waivers and deferrals.
  • Tenants can claim at least 50% of the total reduction in rent as rental waivers. If possible, the landlord must provide waivers of more than 50% in case of tenants failing to continue their ongoing obligations under the lease.
  • Deferrals should be amortized over a period of 24 months or the lease term, whichever is greater.
  • Any deduction in statutory charges and benefits offered by loan providers to the landlord must be proportionately shared with the tenant.
  • Landlord should waive recovery of expenses incurred by tenant under lease terms, during the pandemic.
  • Landlord must not charge any fees, interest or other charges on rent waivers and deferrals.
  • Tenant must be provided with an option of lease extension. If no extension occurs, the repayments should start earlier of the end of COVID-19 pandemic or the end of lease term.
  • There will be a prohibition on landlords drawing on tenant’s securities.
  • There will be a prohibition on levy or penalties on reduction in opening hours or trade by the tenant.
  • There will be a prohibition on rent increases during the pandemic (except retail leases depending on turnover rent), regardless of previous arrangements.

Conclusion:

In case of disagreement, the states and territories will look over the circumstances through a binding mediation process, and come to an outcome convenient for all parties.

Brad Ferris

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