There has been a lot of dialogue in the media regarding the Federal Government’s initiatives to combat the impact of COVID-19 on Australian businesses. It can be confusing to understand what exactly your responsibilities are as a tenant or landlord in the circumstances.

In this article, we break down these initiatives for you and explain your responsibilities as either a landlord or tenant during these uncertain times.

Tenancies

The Mandatory Code of Conduct (the Code) applies to commercial tenancies, including properties which are:

  • retail
  • office
  • industrial

For Tenants

The Federal Government announced the introduction of the Mandatory Code of Conduct (the Code) which will apply to commercial leases for eligible small to medium enterprise (SME) tenants.

How do I know if I qualify?

The Code will apply to SMEs that:

  1. are suffering ‘financial stress or hardship’; and this means that you must demonstrate the ‘company’s inability to generate sufficient revenue as a direct result of the COVID-19 pandemic that causes the tenant to be unable to meet its financial and/or
    contractual commitments’
  2. are eligible for the JobKeeper program; and
  3. have an annual turnover of up to $50 million.

What are my obligations under the Code?

  • You must remain committed to the terms of your lease (subject to any changes to the rental agreement as a result of negotiations with your landlord due to the Code).
    • Any failure to not properly abide by the terms of your lease will mean you forego any protections provided to you as a tenant under the Code.
  • You must negotiate in good faith.
    • This means to act in a sincere and fair way to ensure your interests as well as your landlord’s interests are considered.
  • Provide accurate information.
    • It is your responsibility to provide truthful financial information for the purposes of negotiation with your landlord. For example, you must provide evidence of your financial position such as accurate turnover figures and other relevant financial statements.
  • You must have regard to your landlord’s financial situation and ability to provide additional waivers and deferrals of rent.
  • Pay back your rental deferrals.
    • Payment of rental deferrals by the tenant must be paid in instalments or transferred over the balance of the lease term and for a period of no less than 24 months.
  • Consider your insurance policy.
    • Contact your insurance provider to find out whether your insurance policy will apply in the current conditions.
  • You must work towards achieving a mutually satisfactory outcome with your landlord.

For Landlords

Once the Code takes effect, ‘eligible’ tenants may be able to receive rent reductions, either in the form or waivers or deferrals by their landlords. A “waiver” means the liability no longer exists, whereas a “deferral” means the liability remains but is paid later.

What are my obligations under the Code?

  • You must offer tenants proportionate reductions in rent payable in the form of waivers and deferrals of up to 100% of the amount ordinarily payable, based on the decrease in the tenant’s trade and profit during the COVID-19 pandemic period.
    • Rental waivers must constitute no less than 50% of the total reduction in rent payable.
    • Tenants may decide to waive the requirement for a 50% minimum waiver by an agreement with you.
  • You must not terminate your lease with your tenants due to non-payment of rent during the COVID-19 pandemic period.
  • You should provide to the tenant an opportunity to extend their lease for an equivalent period of the rent waiver and/or deferral period.
    • This is intended to provide the tenant additional time to trade, on existing lease terms, during the recovery period after the COVID-19 pandemic concludes.
  • You must discuss relevant issues to the tenancy, negotiate appropriate provisional leasing arrangements, and work towards attaining a mutually satisfactory outcome for you and your tenant.
  • You must act in an open, honest and transparent manner.
  • You must provide adequate and correct information within the context of negotiations.
  • You must communicate and pass on any reduction in charges (e.g. land tax, council rates). This is important if the lease obliges the tenant to contribute to “outgoings”.
  • You should, where appropriate, attempt to waive recovery of any other expense (or outgoing payable) by a tenant, under lease terms, during any period in which the tenant is not able to trade.
  • You must agree to a freeze on rent increases for the duration of the COVID-19 pandemic (except for retail leases based on turnover rent).

A copy of the Mandatory Code of Conduct can be found here.

Further Information

It is important to be fully aware of your obligations under your commercial lease agreement. If you would like more information on how we can assist you with your matter, do not hesitate to contact us on 9963 9800 or at law@etheringtons.com.au. Check out our blog here for further more information and analysis on the restrictions and rules in place during COVID-19.

Etheringtons Solicitors extends our deepest sympathies to those experiencing hardship or health concerns during this difficult time. Further information about COVID-19 can be found at: www.health.gov.au.