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Commercial Leasing | COVID POLICY ANNOUNCED – A clear way forward for landlords and tenants

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Article by Stephen Gibson | Accredited Property Law Specialist

The property industry will no doubt pass a collective sigh of relief, following the Prime Minister’s announcement, concerning details of the National Cabinet’s package to relieve commercial tenants distressed by the COVID-19 crisis.

As foreshadowed, the National Cabinet has resolved to adopt a mandatory code of conduct, which will need to be legislated independently in each of the States.

That code of conduct is consistent with the Government’s ‘Hibernation Strategy’ directed at preserving the foundations of our country’s economy, enabling us all to rebuild on the other side of this crisis.

The code of conduct will apply to tenancy arrangements where the tenant is otherwise eligible for the previously announced JobKeeper program. That is, the affected party has a:

    1. turnover of $50M or less; and
    2. has suffered a reduction in turnover of 30% or more.

The code of conduct will establish a set of ‘good faith’ leasing principle that are to guide the parties in reaching tailored and bespoke temporary arrangements taking into account their particular circumstances. Those principles will (amongst other things) prohibit landlords from terminating leases or from drawing on the tenant’s security for the duration of the crisis, due to non-payment of rent, provided that the tenant otherwise honours the terms of the lease. A failure by a tenant to comply with the substantive terms of the lease will forfeit any protections provided by the Code.

The code of conduct will require landlords to reduce the rent payable under the lease proportionate to the tenant’s reduction in turnover, for the duration of the pandemic. That rental reduction is to be achieved by a combination of both rental waiver and rental deferment. The rental waiver component must comprise at least 50% of the rental reduction. The landlord must then recover the deferred rent portion over the balance of the lease term or a period of at least 24 months, whichever is greater.

Additional measures include the freezing of rental increases and a prohibition on landlords charging interest on unpaid rent.

The code of conduct will require both landlords and tenants to sit down together and to negotiate in good faith to strike a resolution appropriate for their individual circumstances. The process will be overseen in each of the states by a binding mediation process.

Obviously, a landlord’s ability to provide relief in line with the code will be affected by their own financial restraints. In some cases, landlords may be self-funded retirees who will be dependent on the rental income from the premises to support themselves. There is also obviously the issue of the landlord’s own significant financial obligations to their mortgagees, for which they depend on the rental income to service. The code of conduct is clearly predicated on the Government’s expectation that the major banks will in turn extend relief to affected landlords whose rental incomes are diminished because of the code.

If you, your landlord, or any of your tenants require assistance in these trying times, McCarthy Durie Lawyers  can help. MDL are specialist leasing lawyers and accredited mediators with a broad expertise in all nature of commercial and retail leasing transactions.

We have a suite of quality rent relief and variation documents on hand that can be tailored for your specific circumstances and ready to service Landlords and Tenants alike on an urgent basis.

We are 100% remote ready and have the capability to continue to service our clients should any Government ordered lockdown come into effect.

We can do all of this for a competitive fixed fee.

Call me directly on 07 3479 5217

Stephen Gibson | Director LLB, BBus, Acc. Spec. (Prop) – Qld

Property | Accredited Specialist
DIRECT +61 7 3479 5217
PHONE +61 7 3370 5100
EMAIL StephenG@mdl.com.au

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