Implementation of mandatory Code of Conduct
For the ‘good faith leasing principles’ contained in the mandatory Code of Conduct to be effective, they need to be implemented by the various States and Territories, via legislation and regulation.
But there is no guarantee that that implementation will be uniform across all States and Territories, though that is preferable.
Some of the main principles of the Code include:-
- Landlords must not terminate leases for non-payment of rent during the COVID-19 pandemic period and a reasonable subsequent recovery period;
- Tenants must remain committed to the terms of their lease;
- Landlords must offer Tenants proportionate reductions in rent payable, in the form of waivers and deferrals, of up to 100% of the amount ordinarily payable;
- rental waivers must constitute no less than 50% of the total reduction of rent payable and should constitute a greater proportion of the reduction where a failure to do so would compromise the Tenant’s capacity to fulfil their obligations under the lease. Whilst there are examples in the Annexure to the Code, regard must be had to the Landlord’s financial ability to provide an additional waiver;
- rental deferrals must be amortised over the balance of the lease term or a period of not less than 24 months, whichever is greater;
- Landlords should pass on any benefit they receive due to a deferral of loan payments, in a proportionate manner;
- Reductions in expenses, outgoings or statutory charges (land tax, Council rates or insurance premiums) should be passed on to the Tenant in the appropriate proportion applicable under the lease.
- Landlords should waive recovery of expenses or outgoings payable by a Tenant during the period that the Tenant is not able to trade, but reduce services proportionately;
- Landlords should not seek to increase rents (other than turnover leases) during the pandemic period and a subsequent recovery period.
There will be prohibitions on:-
- fees, interest or other charges being applied to rent reductions; for example, punitive interest being charged on deferred rent;
- penalties being levied by Landlords if Tenants reduce opening hours or cease to trade;
- claims on Bank guarantees/security bonds, for non-payment of rent;
- terminating tenancies for non-payment of rent.
Tenants should be provided with an opportunity to extend leases for an equivalent period of the rent waiver/rent deferral periods.
Where Landlords and Tenants cannot agree on leasing re-arrangements, the matter should be referred to retail/commercial leasing dispute resolution processes for binding mediations.
For now, Landlords and Tenants should prepare for lease re-negotiations … by checking their lease documents and calculating their respective exposures. Landlords should also review insurance policies to ascertain whether loss of rent/business interruption is recoverable.
If you or someone you know wants more information or needs help or advice, please contact Brendan on
(07) 5443 4866 or email firstname.lastname@example.org.
(07) 5443 4866