On 07 April 2020, a mandatory commercial tenancies code was announced to be legislated and regulated in each State and Territory to guide landlord and tenant negotiations during the Covid-19 crisis.
SCA (NSW) believes this is relevant information given that many of our members run/operate a commercial tenancy.
The announcement comes as the Australian Bureau of Statistics reveals more than a third of Australian businesses have renegotiated their lease and rental agreements while a quarter have deferred loan repayments.
The code will bring together principles of good faith leasing and proportionality and will be overseen through a binding mediation process. It’s intended to provide a proportionate and measured burden share between the two parties while still allowing tenants and landlords to agree to tailored, bespoke and appropriate temporary arrangements that take account of their particular circumstances.
To be eligible to negotiate under the code either party must:
- be a business that is in a position of financial distress
- have a turnover of $50 million or less
- be eligible to receive support under the JobKeeper program (meaning the business has experienced at least a 30 per cent drop in revenue due to Covid-19 restrictions)
- Under the Code landlords must not terminate the lease or draw on a tenant’s security. Likewise, tenants must honour the lease agreement.
With regards to rent reduction, landlords will be required to reduce rent in proportion to the trading reduction suffered by the tenant. This will be achieved by a combination of waivers and deferrals of rent; to ensure that the burden is shared between landlords and tenants.
Waivers of rent must account for 50 per cent at least of the reduction in the rental provided to the tenant during that period while deferrals must be covered over the balance of the lease term and for no less of a period than 12 months.
For example, if the lease term goes for three years the cost can be amortised over the three-year period. However, if the lease only has another six months left to run then the tenant would still have a minimum of 12 months after the pandemic period to cover the deferrals of the rental payments.
National Cabinet again noted that it expects Australian and foreign banks, along with other financial institutions operating in Australia, to support landlords and tenants with appropriate flexibility as they work to implement the mandatory Code.
The Commonwealth Government is also acting as a model landlord by waiving rents for all its small and medium enterprises and not-for-profit tenants within its owned and leased property across Australia.
The Government is acting decisively in the national interest to support households and businesses and address the significant economic consequences of the Coronavirus.
To read more about the relief for commercial tenants click here.