Mandatory Code of Conduct – SME Commercial Leasing Principles (COVID-19)

The Federal Government has introduced a mandatory code of conduct to apply between landlords and tenants where the tenant is an eligible business for the JobKeeper programme.

Principles of the Code

  1. Landlords and tenants will be required to work together in good faith to negotiate appropriate temporary leasing arrangements during the COVID-19 pandemic.
  2. Any agreed arrangements are to consider the impact of the COVID-19 pandemic on the tenant with specific regard to revenue, expenses and profitability of the tenant.  Negotiations for reduced rent and are to be proportionate and allow for a reasonable recovery period.
  3. Landlords and tenants are to work co-operatively to assist each other in dealings with other stakeholders such as banks, governments and utility companies.

Leasing Principles

  1. Landlords must not terminate leases due to non-payment of rent during the COVID-19 pandemic period.
  2. Tenants to remain committed to their leases subject to any temporary amendments negotiated under the Code.
  3. Landlords must offer proportionate reductions in rent payable in the form of waivers or deferrals of up to 100% of the amount ordinarily payable based on a reduction in the tenant’s trade during COVID-19.
  4. Rental waivers must be no less than 50% of the total reduction in rent payable and should be a greater proportion where failure to do so compromises the tenant’s ability to continue fulfil their obligations under their lease.
  5. Rent deferrals must be amortised over balance of the lease term and for a period of no less than 24 months unless otherwise agreed.
  6. Any reduction in statutory charges or insurance to be passed on to the tenant in the appropriate proportion under terms of the lease.
  7. Landlords should share any benefit received due to loan repayment deferrals provided by a financial institution.
  8. Landlords are not to draw on a tenant’s security deposit for the non-payment of rent during the COVID-19 pandemic.
  9. Landlords agree to a freeze on rent increases during the COVID-19 pandemic.

For those people that are party to a commercial tenancy it will be necessary to abide by the code. We recommend clients seek legal advice and negotiate with their landlord or tenant based upon the above.

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