Insights / April 7th, 2020

COVID-19: Introduction of Mandatory Code of Conduct for Commercial Tenants and Landlords

The Prime Minister ("PM"), Scott Morrison, has today outlined the mandatory Code of Conduct ("Code") for commercial leases to be introduced in a bid to prevent further damage to business viability both for the landlord and tenant following the COVID-19 pandemic.

The mandatory Code will apply to tenancies where the tenant or landlord has a turnover of $50 million or less and are eligible for the JobKeeper program.

The Code, to be legislated by each State or Territory, includes several principles binding both landlords and tenants as stated by the PM which include:

Landlords must:

  • not terminate the lease;

  • reduce rent proportionate to the trading reduction in the tenant’s business either by a waiver of rent or deferring of rent;

  • not draw on tenant’s security; and

  • freeze rent increases (excluding turnover leases).

Tenants must:

  • to the extent possible honour the lease; and

  • meet any deferred rent payments either within 12 months following the pandemic period or by the end of the lease term, if greater than 12 months post-pandemic period;

Both landlords and tenants are still being implored to communicate in order to navigate the implementation of the above principles with the PM, urging that the “banks also must come to the table” and provide support to the landlords including that the same support is expected of International Banks.

These arrangements will also be overseen by a binding mediation process administered by the States and Territories.

The announcement comes as the Reserve Bank keeps Australia’s interest rates on hold at a record-low 0.25 percent.

The Code continues to be part of the ‘hibernation strategy’ to preserve the lease in place that underpins the value of the asset and the business within the tenancy and to be used as a “mechanism for landlords and tenants to see this through together”.

If you need assistance to open the dialogue between you, your tenant and your bank, Symoane Mercurio has significant expertise in dealing with commercial leases and as an accredited mediator, can assist with those negotiations. Please Contact Us for further information.

This publication has been prepared for general guidance on matters of interest only and does not constitute professional legal advice. You should not act upon the information contained in this publication without obtaining specific professional legal advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication and to the extent permitted by law, Cowell Clarke does not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting or refraining to act in relation on the information contained in this publication or for any decision based on it.