On 7 April 2020, the Federal Government released its much-anticipated Mandatory Code of Conduct - SME Commercial Leasing Principles during COVID-19 (Code).
The Code adopts and builds on principles emanating from National Cabinet Meeting discussions concerning commercial tenancies and is to be implemented by states and territories through legislation or regulation. It imposes a set of leasing principles to apply to commercial tenancies (retail, office and industrial) between owners / operators / other landlords and tenants, in circumstances where the tenant is an eligible business - a small-medium sized business (with annual turnover of up to $50 million) that, due to financial stress as a result of the COVID-19 pandemic is eligible for the Commonwealth Government's JobKeeper Payment.
The Code is intended to apply for the period during which the Commonwealth JobKeeper Payment remains operational.
The Code's purpose is 'to share, in a proportionate, measured manner, the financial risk and cashflow impact during the COVID-19 period whilst seeking to appropriately balance the interests of tenants and landlords.' The mutual benefit of landlords and tenants implementing measures to foster business continuity is acknowledged, and it is anticipated they will negotiate transparently and in good faith to reach tailored solutions. Agreed outcomes should consider the financial impact of the COVID-19 pandemic on the tenant (its revenue, expenses and profitability) with appropriate arrangements having regard to the present impact and a reasonable recovery period.
The Code enables eligible commercial tenants to receive rent relief in the form of waivers or deferrals (proportionate to trading reduction of their business) to help them survive the pandemic and beyond. The Rent Relief Policy requires eligible tenants to continue to engage their employees through the JobKeeper program and uphold the substantive terms of their leases.
Tenants and landlords are commercially reliant on each other and should negotiate in good faith to reach practical solutions that will sustain both, not only during the pandemic, but into the future. Many negotiations will be challenging and complex.
Negotiations, on a case-by-case basis, should consider:
The Western Australian Government has indicated that landlords should not be asking tenants to provide evidence of existing savings to prove financial hardship but the position in Western Australia is expected to become clearer as the Commercial Tenancies (Covid19 Response) Bill 2020 is introduced to State Parliament. It will introduce:
Updated information is available on the Consumer Protection website, as below:
Negotiations can be facilitated with the assistance of a commercial lawyer and agreed variations documented in writing and, where relevant, registered on the title of the leased premises.
We encourage NECA members who are tenants or landlords and financially impacted by the COVID-19 pandemic to seek legal advice and assistance.
Disclaimer: This summary is a guide only and is not legal advice. For more information on employers’ obligations, call NECA Legal (WA) Pty Ltd on (08) 6241 6129 or email email@example.com.