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The Code for Commercial Tenants and Landlords released on April 7th by the National Cabinet contains complex provisions that if not properly understood by you, could lead to an outcome for you that is sub-optimal and which could penalise your business financially for many months to come.
In this article we have provided a summary of the main provisions contained within the Code however, we encourage you to seek assistance. Our Commercial Leasing Team is ready to assist you to negotiate with your Landlord/Tenant.
Recommendations
If you are unsure of your rights and obligations as an eligible Tenant or a Landlord during this period of uncertainty, please take a moment to consider the points below as well as read the Code to ensure you understand the full extent of your entitlements and obligations under the Code as well as your lease during this period.
If you engage us we can guide you through the Code and your negotiations including documenting any arrangements you make. We can explain the application of the Code to you and assist you in formulating a negotiation position.
We can also assist you to negotiate and finalise your Agreement and formalise the terms the parties reach.
We suggest parties commence discussion as soon as possible. Landlords can request Tenants provide relevant information and evidence to demonstrate the Tenant is eligible for relief under the Code. Landlords may seek comfort from the Tenant’s accountant’s and bankers about information provided by the Tenants.
The Code encourages further negotiations and compromises that seek to protect and extend the contracts until businesses are opening up again.
The term COVID-19 period means the period of 6 months from 1 March 2020 during which the Job Keeper programme is operational.
Eligibility
The Code applies to all tenants who:
- are eligible for the Job Keeper programme (and therefore have proven that they are suffering from financial stress or hardship);
- have a turnover of less than $50 million
Landlord Restrictions – main points
The Landlord:
- must not terminate the lease due to non-payment of rent during the COVID-19 period;
- must offer proportionate reductions in rent payable of up to 100% in forms of a deferrals or waivers of the amount ordinarily payable based on the reduction in tenant’s trade during the COVID-19 period and later reasonable recovery period and in particular:
- waivers must be more than 50% of the total rent reduction (Tenant may waive this requirement)
- waivers should constitute a greater proportion of the total reduction in cases where not doing this would compromise the tenant’s capacity to fulfill their ongoing obligations
- must consider the Landlord’s financial ability to provide additional waiver
- deferral payments must be amortised over a period of more than 24 months (this means if the lease expired in 6 months, the Tenant will have a further 18 months to pay)
- no fees, interests or other charges should be applied to rent waived and deferrals
- must not draw on Tenant’s security for non-payment of rent
- must pass on any reduction in land tax, council rates (and other statutory charges) and insurance to the Tenant;
- must not increase rent for the duration of the COVID-19 pandemic and later reasonable recovery period;
- must not apply any prohibition or levy any penalties if the Tenant reduces opening hours or ceases trade due to the COVID-19 pandemic;
- should share benefits of any deferral of loan payments with the Tenant;
- should waive recovery of expense payable by a tenant during the period where the tenant is not able to trade (Landlord may reduce services as required in such circumstances);
- should provide the Tenant with an opportunity to extend its lease for the period of the rent waiver and/or deferral
- should give the Tenant more time to pay for any costs to negotiate under the Code and no such payment should be made by the Tenant until the COVID-19 pandemic ending or the existing lease expiring
- must not use the mediation process to prolong or frustrate the facilitation of resolutions
Tenant Restrictions
The Tenant must:
- remain committed to the term of the lease, subject to any amendments under the Code (failure to comply with the lease may result to forfeiting protection under Code);
- must not use the mediation process to prolong or frustrate the facilitation of resolutions
Binding Mediation
Where the Landlord and Tenant cannot reach agreement on arrangements under the Code, both parties should go through applicable dispute resolution processes.
Please contact one of our team members so we can assist you with your lease negotiations.
If you are a Landlord you may wish to start preparing a pro forma variation document to be ready to document changes and protect your interests once requests are made.
Contact details:
Anna Zdrilic, Principal – 9635 7966 annaz@matthewsfolbigg.com.au
Terry Doust, Principal – 9635 7966 terryd@matthewsfolbigg.com.au
Minh Huynh, Lawyer – 9806 7455 minhh@matthewsfolbigg.com.au
Phillip Brophy, Senior Lawyer- 9806 7452 phillipb@matthewsfolbigg.com.au
Liability limited by a scheme approved under Professional Standards Legislation.
DISCLAIMER: This article is provided to clients and readers for their general information and on a complimentary basis. It contains a brief summary only and should not be relied upon or used as a definitive or complete statement of the relevant law.
