COVID-19 | The Com­mer­cial Ten­an­cies Code | 8 April 2020

In our pre­vi­ous update, we out­lined some of the mea­sures the Prime Min­is­ter intend­ed to imple­ment to pro­vide sup­port and relief for com­mer­cial ten­ants and land­lords in finan­cial dis­tress as a result of the COVID-19 crisis.

On 7 April 2020, the Nation­al Cab­i­net announced a manda­to­ry code of con­duct (click here) (Com­mer­cial Ten­an­cies Code) to be leg­is­lat­ed and reg­u­lat­ed by each of the State and Ter­ri­to­ry Governments.

The Com­mer­cial Ten­an­cies Code is intend­ed to man­date a set of good faith prin­ci­ples to be applied to com­mer­cial, retail and indus­tri­al leas­es where the ten­ant is eli­gi­ble for the Com­mon­wealth Government’s Job­Keep­er assis­tance and is a small or medi­um sized enter­prise (with an annu­al turnover of up to $50 million).

The objec­tive of the Com­mer­cial Ten­an­cies Code is for a land­lord and ten­ant to share, in a pro­por­tion­ate, mea­sured man­ner, the finan­cial risk and cash­flow impact dur­ing the COVID-19 cri­sis, whilst seek­ing to bal­ance the inter­ests of the land­lord and ten­ant. It is expect­ed that a land­lord and each eli­gi­ble ten­ant will nego­ti­ate a tai­lored, bespoke and appro­pri­ate tem­po­rary arrange­ment, on a case by case basis.

The fol­low­ing leas­ing prin­ci­ples should be applied in nego­ti­at­ing and enact­ing appro­pri­ate tem­po­rary arrange­ments between a land­lord and ten­ant under Com­mer­cial Ten­an­cies Code:

1. A land­lord must not ter­mi­nate a lease for non-pay­ment of rent dur­ing the COVID-19 cri­sis or a rea­son­able recov­ery period.
2. A land­lord must not claim on upon a tenant’s secu­ri­ty (bank guar­an­tee, secu­ri­ty deposit or per­son­al guar­an­tee) for non-pay­ment of rent dur­ing the COVID-19 cri­sis or a rea­son­able recov­ery period.
3. A land­lord must freeze rent increas­es (except for retail leas­es based on turnover rent) for the dura­tion of the COVID-19 cri­sis and a rea­son­able recov­ery period.
4. A land­lord must not impose any penal­ties or pro­hi­bi­tion against the ten­ant reduc­ing its open­ing hours or ceas­ing to trade due to the COVID-19 crisis.
5. A land­lord must offer the ten­ant a rent reduc­tion pro­por­tion­ate to the trad­ing reduc­tion in the tenant’s busi­ness over the course of the COVID-19 cri­sis, through a com­bi­na­tion of waivers of rent and defer­rals of rent (Rent Relief).
6. Waivers of rent must account for at least 50% of the Rent Relief.
7. Defer­rals of rent must be cov­ered over the bal­ance of the lease term and in a peri­od not less than 24 months fol­low­ing the COVID-29 cri­sis. (Note there is some con­fu­sion between the Com­mer­cial Ten­an­cies Code and the Prime Minister’s state­ment of 7 April 2020. The Prime min­is­ter men­tioned a peri­od of 12 months, not 24 months).
8. A land­lord must not charge any fees, inter­est or oth­er charges to the ten­ant with respect to waivers and defer­rals of rent.
9. A land­lord must pass on to the ten­ant (with appro­pri­ate pro­por­tion­al­i­ty as applic­a­ble under the terms of the lease) any reduc­tions in statu­to­ry charges, such as land tax, coun­cil rates and insurance.
10. A land­lord should, where appro­pri­ate, waive (or oth­er­wise reduce) recov­ery of any oth­er expense by the ten­ant dur­ing the peri­od the ten­ant is not able to trade. A land­lord is enti­tled to reduce ser­vices in these circumstances.
11. A land­lord should seek to share any ben­e­fit the land­lord receives from its bank due to a defer­ral of loan pay­ments, with the ten­ant in a pro­por­tion­ate manner.
12. A ten­ant must hon­our the terms of the lease, as amend­ed in accor­dance with nego­ti­a­tions under the Com­mer­cial Ten­an­cies Code. If the ten­ant breach­es the sub­stan­tive terms of the lease in a mate­r­i­al way, the ten­ant will for­feit any pro­tec­tion pro­vid­ed to the ten­ant under the Com­mer­cial Ten­an­cies Code.
13. A ten­ant should be pro­vid­ed with an oppor­tu­ni­ty to extend its lease for the equiv­a­lent peri­od of the waiv­er or defer­ral peri­od. This is intend­ed to pro­vide the ten­ant with addi­tion­al time to trade on the exist­ing lease terms dur­ing the peri­od after the COVID-19 crisis.
14. If nego­ti­at­ed arrange­ments under the Com­mer­cial Ten­an­cies Code involve repay­ment by the ten­ant, this should occur over an extend­ed peri­od to avoid plac­ing an undue bur­den on the tenant.

If a land­lord and ten­ant can­not reach an agreed posi­tion on alter­na­tive leas­ing arrange­ments as a direct result of COVID-19, the mat­ter should be referred to a bind­ing medi­a­tion process over­seen by the rel­e­vant State or Ter­ri­to­ry Government.

In addi­tion, the Prime Min­is­ter urged banks to coop­er­ate by com­ing to the table to offer sup­port and co-oper­a­tion to land­lords in order to pre­serve leases.

In the com­ing days, we expect fur­ther details from the State and Ter­ri­to­ry Gov­ern­ments regard­ing the appli­ca­tion of the Com­mer­cial Ten­an­cies Code in each rel­e­vant jurisdiction.

We will keep you updat­ed as fur­ther details comes to hand.

The Com­mer­cial Ten­an­cies Code does not apply to res­i­den­tial leas­es. Fur­ther work is required in this regard.

For more of our COVID-19 prop­er­ty law alerts, updates and pub­li­ca­tions or to make an online enquiry please click here and we will respond to you as a mat­ter of urgency. Alter­na­tive­ly just call us on +61 2 9233 5544.

Kind regards

the Swaab Prop­er­ty Team