The National Cabinet has issued a mandatory code of conduct to impose leasing principles for all commercial tenancies which will have significant impacts on the way landlords and tenants approach negotiations as they navigate the COVID-19 pandemic.

The Key Principles

  • Landlords must not terminate leases for non-payment of rent during the COVID-19 pandemic period and any reasonable subsequent recovery period.
  • Tenants must continue to abide by any terms of their lease (as amended). Failure to abide by substantive terms of the lease such as insurance and maintenance will result in the tenant forfeiting any rights they may have under the Code.
  • Landlords must offer their tenants a proportionate reduction in rent payable in the form of a waiver or deferral of up to 100% of the amount payable for the period during the COVID-19 pandemic and any reasonable subsequent recovery period.
  • Rental waivers must be no less than 50% of the total reduction in rent payable over the pandemic period and should constitute a greater proportion of the total deduction in rent payable in circumstances where failure to provide such rental waiver would compromise the Tenants ability to fulfil the Tenants ongoing lease obligations.
  • Any rental deferral must be repaid over the balance of the lease term or a period which is no less than 2 years [whichever is the greater] unless the parties agree otherwise.
  • If the Landlord receives any reduction in statutory charges (i.e. land tax or council charges) they must be passed onto the Tenant in their respective proportion as outlined in the terms of the lease.
  • Landlords should seek to share the benefit they receive from any loan deferrals or assistance from financial institutions with the Tenant in a proportionate manner.
  • Landlords should where they can reduce or waive recovery of any expense or outgoings and may limit services as required to facilitate this.
  • If any payments are to be deferred any repayments must not commence until the earlier of the COVID-19 pandemic ending or the lease expiring. A reasonable subsequent recovery period must be considered.
  • No fees or interest may be charged to Tenants for delayed payments.
  • Landlords must not draw on any Tenant security, including cash bonds and Bank Guarantees for the non-payment of rent during the pandemic period and subsequent reasonable recovery period.
  • The Tenant should be provided with an opportunity to extend its lease for the equivalent period of rent waiver or deferral.
  • Landlords agree to freeze rental increases (except for retail leases based on turnover rent) for the duration of the pandemic period and subsequent reasonable recovery period.
  • Landlords cannot object or issue any penalty if Tenants reduce opening hours or cease to trade during the pandemic period.

Job Keeper Payments and the Code

The Code is somewhat linked to the Commonwealth’s Job Keeper programme with Tenants being automatically deemed to be in financial hardship for the purposes of the Code by demonstrating their eligibility for the Job Keeper programme. The amount of rent relief available must take into account the Tenant’s eligibility for the Job Keeper programme.

Important Considerations & Next Steps

Landlords and Tenants must work together, in good faith, to negotiate and navigate any amendments to leases during the COVID-19 pandemic. Importantly parties should note:

  • Where no agreement is reached under this Code the matter must be referred to mediation.
  • Each case will need to be considered on a case by case basis and Tenants and Landlords should keep accurate and written records of any financial hardship to assist with considering eligibility under the code.
  • The term of the ‘reasonable subsequent recovery period’ is yet to be determined but again will likely need to be considered on a case by case basis.
  • Tenants whose business has not been affected by COVID-19 must still pay rent.
  • Landlords and Tenants should consider formally documenting any amendments to their Lease in writing by way of a signed letter or agreement where possible.
  • Regard must be had to the Landlord’s financial ability to provide any rental waivers.

The Information provided in this document is not an exhaustive summary and careful consideration as to each specific matter must be taken. Professional advice should be sought in relation to your specific circumstances.

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