On 3 April 2020 National Cabinet made further progress on the issue of commercial tenancies.
They have agreed that a mandatory code of conduct guided by certain principles will be developed and subsequently legislated by State and Territory Governments to apply for tenancies where the tenant is eligible for the Commonwealth Government's JobKeeper assistance and is a small- or medium-sized enterprise (less than $50 million turnover).
The principles proposed to guide the code include:
- Rent to continue to be paid– Where it can, rent should continue to be paid, and where there is financial distress, tenants and landlords should negotiate a mutually agreed outcome
- Rent reductions – There will be a proportionality to rent reductions based on the decline in turnover to ensure that the burden is shared between landlords and tenants
- Prohibition on termination of leases – There will be a prohibition on termination of leases for non-payment of rent (lockouts and eviction)
- Freeze on rent increases – There will be a freeze on rent increases (except for turnover leases)
- The will be prohibitions on:
- Penalties – There will be a prohibition on penalties for tenants who stop trading or reduce opening hours
- Landlords passing on land tax to the tenants
- Charging interest on unpaid rent
- Making a claim to a bank guarantee or security bond – for non-payment of rent
- Lease extensions – Ensure that any legislative barriers or administrative hurdles to lease extensions are removed (so that a tenant and landlord could agree a rent waiver in return for a lease extension)
- Code of conduct and 3 month land tax waiver – For landlords and tenants that sign up to the code of conduct, States and Territories have agreed to look at providing the equivalent of at least a three month land tax waiver and three month land tax deferral on application for eligible landowners, on the condition that Landlords pass on the benefits of the waiver or deferral to the tenants. The proposed code of conduct will be discussed at the next meeting of the National Cabinet on Tuesday 7 April 2020.
Landlords and tenants should prepare for coming lease negotiations by checking their lease documents and calculating their respective exposures. Review of insurance policies to ascertain whether loss of rents/business interruption losses will be recoverable is also advisable.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.