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Mandatory Commercial Tenancies Code during Covid-19

A new mandatory commercial tenancies code was released 7 April 2020 by the Federal Government to impose a set of good faith leasing principles for application to negotiations between tenants and landlords during the Covid-19 pandemic.

The Code will be legislated and regulated in each State and Territory in Australia, and will apply in circumstances where a tenant is an eligible business for the purpose of the Commonwealth Government’s JobKeeper programme.

Landlords and tenants will be obliged by the Code to:

  • assist each other in their respective dealings with other stakeholders including governments, utility companies, and banks/other financial institutions in order to achieve outcomes consistent with the objectives of the Code;

  • take into account the impact of the COVID-19 pandemic on the tenant, and make arrangements proportionate and appropriate based on the impact of the COVID-19 pandemic plus a reasonable recovery period;

  • negotiate in good faith, act in an open, honest and transparent manner, and provide each other with sufficient and accurate information within the context of negotiations.

The Code contains 14 principles, which include:

  • Landlords must not terminate leases due to non-payment of rent during the COVID-19 pandemic period;

  • Tenants must remain committed to the terms of their lease, subject to any amendments to their rental agreement negotiated under the Code. Material Failure to adhere to substantial terms of the lease will mean the tenant will forfeit protections available to it under the Code;

  • Landlords must offer tenants proportionate reductions in rent payable in the form of waivers and deferrals based on the reduction in the tenant’s trade during the COVID-19 pandemic period and a subsequent reasonable recovery period;

  • In relation to rent reductions made up of waivers and deferrals, rental waivers must constitute no less than 50% of the total reduction in rent payable and should constitute a greater proportion of the total reduction in cases where it is necessary for the tenant’s capacity to fulfil their ongoing obligations under the lease. Regard must also be had to the Landlord’s financial ability to provide such additional waivers. Tenants may waive the requirement for a 50% minimum waiver by agreement.

  • No fees, interest or other charges should be applied with respect to rent waived and no fees, charges nor punitive interest may be charged on deferrals; and

  • Landlords must not draw on a tenant’s security for the non-payment of rent during the period of the COVID19 pandemic and/or a reasonable subsequent recovery period.

If landlords and tenants are not able to reach an agreement, the matter can be referred by either party to binding mediation.

Terri Bell & Co can provide assistance to commercial tenants and landlords in negotiations under the Code, or answer questions you may have regarding the impact of the Code on your business and commercial lease. If you have any questions, please contact Terri Bell or Ellie Wolfenden on info@tlblaw.com.au or 9191 9856

IMPORTANT NOTICE - The information contained in this article is not intended to be comprehensive. It is general in nature and is not intended to be used as a substitute for legal, financial or other professional advice. You must seek specific professional advice tailored to your personal circumstances before taking any action based on this article. Liability limited by a scheme approved under Professional Standards Legislation. Solicitor directors and legal practitioners employed by Terri Bell & Co Pty Limited are members of the scheme.

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Liability limited by a scheme approved under Professional Standards Legislation. Solicitor directors and legal practitioners employed by Terri Bell & Co Pty Limited are members of the scheme.

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