The new MANDATORY Code of Conduct for rent relief for commercial leases where Tenants (and Landlords) are affected by COVID-19 was released by the Prime Minister’s Office today.
Key Points
Who is affected?
- The Code only applies where a Tenant or Landlord qualifies for JobKeeper Program from the Commonwealth. That is:
- turnover under $50 Million; AND
- experiencing at least a 30% reduction in turnover.
- For franchisees, the impacted turnover is calculated at the franchisee level.
- The government is asking that Landlords apply the same principles to Tenants that do not qualify for the JobKeeper Program.
Rent Relief
- Rent relief applies for affected Tenants from 3 April 2020 until the government declares the JobKeeper Program ends.
- There needs to be transparency in dealings between the Landlord and the Tenant. Tenants can be required to provide “sufficient and accurate information”. This includes information generated from an accounting system and information provided to and/or received from a financial institution.
- Relief is based on proportionality – the rent relief is to be in the same proportion as the reduction in turnover of the affected Tenant.
- At least 50% of the rent relief is required to be a complete waiver of the applicable rent (this cannot be subsequently recouped by the Landlord).
- The remaining 50% of the rent relief granted is to be amortised over the remaining term of the lease BUT where there is less than 24 months of the lease term remaining the Tenant must be given at least 24 months to repay the rent relief. How this is achieved is open to negotiation between the Landlord and the Tenant
- No fees, interest or other charges is to be applied to the rent waived or deferred.
- Rent increases are frozen during the period of the pandemic.
- No penalties can be applied for reduced opening hours by Tenants during the pandemic.
- Landlords should pass through to Tenants benefits they receive from Landlord’s banks during the pandemic.
- Landlords must not draw on a Tenant’s security for the non-payment of rent (cash bonds, bank guarantees or personal guarantees) during the period of the pandemic and a reasonable subsequent recovery period.
- Tenants are able to (but not obliged to) extend their lease for an equivalent period of the rent waiver and/or deferral period.
Compulsory Mediation
- Where Landlords and Tenants cannot reach agreement on leasing arrangements (as a direct result of the COVID-19 pandemic), the matter is to be referred and subjected (by either party) to applicable state or territory retail/commercial leasing dispute resolution processes for binding mediation.
- Landlords and Tenants must not use mediation processes to prolong or frustrate the facilitation of amicable resolution outcomes.
Document, Document, Document!!
- Inevitably, people’s recollection of arrangements agreed decay over time.
- The only sure way to minimise the chance of an expensive dispute later is to document the agreement reached.
- An experienced property lawyer can assist in avoiding unintentional ambiguities or missed key points.
Our Toowoomba lawyers team is ready to assist with any questions and assist with negotiation and documentation of arrangements reached.
