The Latest From The Government On Commercial Property

On Tuesday the government announced that, in addition to the 6 month moratorium on evictions,  a mandatory code of conduct will be developed to standardise commercial tenancy agreements impacted by the COVID-19 pandemic. 

Last week we talked about the importance for tenants and landlords to act in good faith and start a conversation. The new code of conduct serves to re-enforce the need for fair, open and honest relationships between both parties, as we navigate through the difficult times ahead.

Here’s What You Need To Know About The Code:
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• This affects commercial leases only
• The code will be legislated and regulated by each state and territory
• To be eligible to be covered by this Code, businesses (as tenants) must have a turnover of $50 mil or less AND be eligible for Job Keeper as well.
• Tenants must continue to honour their lease and rent must continue to be paid. Any material failure to abide by terms will forfeit any protections provided to the tenants under this code.
• If a tenant is in financial distress, a mutually agreed outcome should be agreed upon, guided by a set of good faith principles
• Rents can be reduced proportionately to the tenant’s decline in trading over the course of the pandemic.
• This principle of proportionality can be achieved by a combination of rent waivers and deferrals of rent. So, a 50% reduction in revenue would mean a 50% reduction in rent. Of this reduction, at lease 50% as a minimum will need to be waived. Payment of rental deferrals by the tenant must be amortised over the balance of the lease term and for a period of no less than 24 months, whichever is the greater, unless otherwise agreed by the parties.
• Banks will be encouraged to assist landlords, including international banks operating in Australia
• Landlords must freeze any planned rent increases for the duration of the pandemic and a reasonable subsequent recovery period
• There will be no penalties for tenants who stop trading or reduce opening hours
• Landlords cannot pass their land tax to tenants
• Landlords cannot charge interest on unpaid rent
• Landlords cannot terminate a lease or draw on bank guarantees or security deposits for tenant breaches
• Rent waivers can be offered in exchange for lease extensions
• The code will be overseen by binding mediation

Whilst the Code will certainly go a long way in guiding tenants and landlords during this hibernation period, it is still largely up to the tenants and landlords to be able to negotiate fairly, respecting each other’s unique circumstances so small-medium businesses can emerge and begin trading again on the other side. 

BRM is here to help. Please contact us to discuss your specific leasing situation.
 

BRM has created some useful resources for tenants related to leasing during COVID19. To access these resources click below.

COVID Leasing Resources