The Federal Government has released a mandatory code of conduct for commercial leasing arrangements, to take effect from 3 April 2020 for the same six-month period as the JobKeeper program.
Commercial tenancies include retail, offices, warehousing and industrial leases.
The new code affords tenants a combination of rent waivers and deferrals
What does it mean for tenants?
Commercial rent relief eligibility is in line with the JobKeeper Payment scheme. (small businesses with less than 50 million in turnover, who have experienced a reduction in turnover by more than 30%).
- Leases can’t be terminated for non-payment of rent.
- Rent reductions will be proportional. If your turnover is down by 50% then your rent would reduce by 50%. At least 50% of the reduction amount must be waived and the remainder can be a rent deferral – with a minimum 24 months to pay, or the term of your lease.
- There can be no fees or charges for a waiver or deferral.
What are the rules for landlords?
- Evictions will be banned for the next six months.
- Any benefits, such as a reduction in land tax or reduced interest payments must be proportionally passed on to tenants.
- Landlords must give a lease extension for the period of the deferral of rent.
- Rent can not be increased for the period of the COVID-19 pandemic and/or a reasonable subsequent recovery period.
- Landlords will not be able to draw on a tenant’s security such as a bond, for non-payment of rent during this period.
- No penalties can be charged to tenants who reduce opening hours or cease to trade due to the COVID-19 pandemic.
The property owner may choose to waive 100% of the rent for the six-month period, and a lessee may choose to pay the agreed reduced rent without deferring any payments.
The code requires landlords and tenants to negotiate new arrangements for the period of the JobKeeper program to aid continuation of business once the pandemic business crisis is over. The intention of the code is to ensure that the financial burden is shared between property owners and tenants.
Tenants must supply accurate reports to prove their financial position and eligibility for JobKeeper. Likewise, landlords must be open and honest in passing on any applicable decrease in their costs, such as rates or taxes, or any other benefits such as deferred loan payments, to the tenants.
Struggling with rent? – We can help you with the financial reports you will need to provide to the proprietor of your business premises.
Property owners – Talk to us if you need help working out the waiver and deferral amounts for your tenants.
This new code is binding. If the two parties cannot reach agreement, they will need to approach the relevant State or Territory office for advice or mediation.
For full details of the code, download SME Commercial Leasing Principles During COVID-19.
This information does not constitute financial or legal advice and is for general information purposes only. Please contact DLA Partners for specific advice relating to your particular circumstances.