In light of the global pandemic of Coronavirus (COVID-19), the Australian Federal Government, along with the State and Territories have imposed significant restrictions to prevent the spread of COVID-19. These new laws and regulations have dramatically altered society and more relevantly how most businesses trade in the market place. As our country continues to manage the spread of the virus, the economic impact on businesses has become apparent. One of the key issues has been the issue of paying rent in the commercial and retail lease context.
On 7th April 2020, the National Cabinet announced a set of guidelines for a Code of Conduct (the “Code”) establishing “good faith” leasing principles between Landlord and Tenant. The Code has not yet been formally adopted by either the Federal or State Governments. However, it is assumed that the Code will be adopted shortly. The Code seek to enshrine various principles relevant to the landlord and tenant relationship, namely:
- It is intended that the Code applies to those tenant’s who meet the eligibility criteria for the Jobkeepers package;
- Landlords must not terminate leases due to non-payment of rent during the COVID-19 pandemic period. There are also limitations on the Landlord drawing upon any security for non payment during the COVID-19 pandemic period;
- Tenant’s must remain committed to the terms of their lease subject to any agreed amendments;
- Landlord’s must offer tenant’s a proportionate reduction in rent (made up of waiver or deferral) of up to 100% of the usual rent based on the reduction on the tenant’s trade during the COVID-19 pandemic period.
- Any reduction offered must comprise at least one half (½) waiver of rent and the other half can be by way of deferral. It is proposed that the greater component of the rent will be waived rather than deferred, however, regard must be had to the Landlord’s financial ability to provide such additional waivers.
- Any deferrals of rent must be amortised over the balance of the lease term and for a period of no less than twenty four (24) months whichever is the longer.
- Landlords and Tenants are encouraged to agree on rent relief or temporary amendments to the Lease;
- Any reduction in statutory charges (such as land tax, council rates) or insurance are to be passed onto the tenant;
- If a Landlord receives a benefit due to a deferral of loan payment from their bank/financier, they should seek to share the benefit on a pro rata basis with the tenant;
- There will be limitation on recovery of interest and other expenses as well as a freeze on rent increases for the COVID-19 pandemic period;
- There will be no penalty on tenants who reduce trading hours during the COVID-19 pandemic period; and
- Where the Landlord and Tenant cannot reach agreement on leasing matters, the matter can be referred to the relevant State leasing dispute resolution process (e.g. the NSW Small Business Commissioner).
Most of these solutions require significant Landlord/Tenant cooperation with tenants, landlords and financial institutions being encouraged to sit down together to find a way through to ensure that businesses can survive.
In NSW, the COVID-19 Legislation Amendment (Emergency Measures) Act has amended various legislation (such as the Retail Leases Act) now permitting regulations to be passed specific to the COVID-19 pandemic. It is anticipated that regulations will be introduced shortly to adopt the Code.
For Landlord and Tenant, the Code will provide a framework with the negotiations around commercial lease term amendment. For both parties, it is important to remember that both Landlord and Tenant will be experiencing financial hardship as a result of this COVID-19 pandemic and it is therefore crucial to frame all discussions in a manner that works towards finding a mutually beneficial solution. We suggest that you identify your key concerns, make reasonable requests and affirm that this is a short term change in lease terms to ensure your business able to reopen and see out the remainder of the lease.
We can assist in framing that proposal and negotiating relevant changes. Any changes that have been agreed, should be recorded in an agreement between the parties.
For more information contact:
Heath Adams Director-Lawyer (m) 0417 290 755
Amelia Hatton – Lawyer (m) 0406 062 255