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Mandatory Code of Conduct for Commercial Leases during COVID-19

Melanie Young, Samantha Taylor, Emma Dunlevie and Mark McKinley

Our property team recently published an Insight on dealing with commercial leases in the time of COVID-19, which can be found here.

On 7 April 2020, the National Cabinet’s mandatory Code of Conduct for commercial tenancies was released (Code). The Code can be found on the Prime Minister’s webpage hereOn 15 April 2020, the Victorian Premier announced that there will be an emergency sitting of Parliament on Thursday 23 April 2020 to pass legislation to implement the Code.

The purpose of the Code is to provide a set of good faith leasing principles to help landlords and tenants of commercial, retail and industrial premises navigate the difficult task of ensuring that lease arrangements survive the period of the COVID-19 pandemic.

The Code is intended to bring a consistent, balanced and national approach to dealing with commercial tenancies and for landlords and tenants to share, in a proportionate manner, the financial risk and cash flow impact during the COVID-19 period.

The Code does not apply to all commercial leases. It only applies to small to medium enterprise tenants who:

  • have an annual turnover of less than AUD$50 million; and
  • are suffering financial stress or hardship as a result of the COVID-19 pandemic.In particular, those tenants which are eligible for the Commonwealth JobKeeper program are automatically deemed to satisfy those requirements (noting that the JobKeeper program requires the tenant to suffer, or be likely to suffer, at least a 30% reduction in turnover).

The Code sets out 14 “Leasing Principles” to be implemented and regulated via legislation, including the following:

  • Landlords cannot terminate a lease for non-payment of rent;
  • Tenants must continue to comply with their obligations under the lease;
  • Landlords must offer tenants reductions in rent in the form of waivers and deferrals, proportionate to the reduction in the tenant’s trade during the pandemic period;
  • Rent waivers must constitute no less than 50% of the total reduction in rent;
  • Any reduction in statutory charges or insurance will be passed on to the tenant, and landlords should waive recovery of expenses and outgoings where appropriate;
  • Landlords must not draw on a tenant’s security for the non-payment of rent; and
  • Landlords agree to a freeze on rent increases.

On 15 April 2020, the Victorian Premier announced that there will be an emergency sitting of Parliament on Thursday 23 April 2020 to pass legislation which will:

  • codify the measures set out in the Code into Victorian law, to come into effect from 29 March 2020 for 6 months;
  • provide a 25% discount on land tax to landlords who provide coronavirus-impacted tenants with rent relief, and any remaining land tax can be deferred until March 2021; and
  • provide Victorian landlords and tenants with access to a fast-tracked mediation and dispute resolution service conducted by the Victorian Small Business Commission, to help parties reach agreement on leasing arrangements.

The Premier’s media release of 15 April 2020 can be found here.

How we can help

All landlords and tenants to which the Code applies must understand the Leasing Principles outlined in the Code in preparation for the new legislation. These Principles should be used in negotiating a mutually acceptable arrangement.

For further advice on compliance with the Code, or a commercial strategy in respect of your lease or leasing portfolio, please contact Melanie Young, Samantha TaylorMark McKinley or Emma Dunlevie.

If you would like to keep in touch with Alerts and Insights from our expert Property team, you can subscribe to our mailing list here.

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