Commercial Tenancy Update (COVID-19) – By Jesse Rankine
The Federal Government recently released a Code of Conduct for commercial tenancies during the COVID-19 pandemic. A copy of the Code of Conduct can be found at the following web address:
The Code of Conduct applies to small and medium enterprises who have an annual turnover of less than $50 million and which are eligible to receive JobKeeper payments due to the pandemic.
The Code of Conduct sets out 14 Leasing Principles, which are summarised as follows:
- Landlords are unable to terminate leases due to non-payment of rent;
- Tenants must abide by the other terms of the lease or risk forfeiting the protections of the Code of Conduct;
- Landlords must offer Tenants rent reductions by way of waivers and deferrals, such reductions being proportionate to the Tenant’s reduction in trade during the pandemic;
- At least 50% of the rent reductions must be by way of rent waiver;
- Rent deferrals must be repaid over the balance of the Lease or a period of 2 years (whichever greater);
- Reductions in statutory charges such as land tax or council rates or insurance are passed onto the Tenant;
- Landlords are to share with Tenants any benefits received by way of deferral of loan repayments;
- Landlords should waive recovery of other outgoings but are able to reduce services to Tenants;
- Repayments to the Landlord should commence on the earlier of the expiry of the lease or the ending of the pandemic;
- Landlords cannot charge fees or interest on waivers nor fees or punitive interest on deferrals;
- Landlords are unable to draw on the Tenant’s security deposit for the non-payment of rent until after the end of the pandemic;
- Tenants have the option to extend their lease on the same terms during the pandemic and for the recovery period afterwards;
- A freeze on rent increases during the pandemic and recovery period; and
- Landlords are unable to penalise Tenants for reduced hours or ceasing trade due to the pandemic.
In accordance with the code, the Victorian Government has now announced that the Code of Conduct will be enacted into law effective from 29 March 2020 for a period of 6 months.
Other Victorian initiatives include a 25% discount on Land Tax for Landlords that provide Tenants with rent relief and the deferral of payment of Land Tax until March 2021. Additionally, rental disputes regarding the operation of the Code of Conduct will be able to be fast tracked at little or no cost through the Victorian Small Business Commission.
Should you have any queries regarding the operation of the Code of Conduct and how it impacts your business please do not hesitate to contact our office.