Mandatory Code of Conduct for Commercial Leases During the Coronavirus
Last week the National Cabinet issued a statement confirming that it had met and agreed:
- That “states and territories would implement the attached mandatory Code of Conduct (the Code), including via legislation or regulation as appropriate, to implement the principles” previously agreed (on 3 April).
- The purpose of the Code is “to impose a set of good faith leasing principles for application to commercial tenancies (including retail, office and industrial) between owners/operators/other landlords and tenants, in circumstances where the tenant is a small-medium sized business (annual turnover of up to $50 million) and is an eligible business for the purpose of the Commonwealth Government’s JobKeeper programme.”
- “The Code provides a proportionate and measured burden share between the two parties while still allowing tenants and landlords to agree to tailored, bespoke and appropriate temporary arrangements that take account of their particular circumstances.”
- National Cabinet “expects Australian and foreign banks along with other financial institutions operating in Australia, to support landlords and tenants with appropriate flexibility as they work to implement the mandatory Code.”
- “The Rent Relief Policy will include a mutual obligation requirement on the small and medium sized enterprises and not-for-profit tenants to continue to engage their employees through the JobKeeper initiative where eligible, and if applicable, provide rent relief to their subtenants.”
The Code provides mandatory guidelines for landlords and tenants of commercial leases to follow when negotiating rent relief terms during the coronavirus period, where the tenant is has a turnover of $50 million or less and is suffering financial stress or hardship.
For the purposes of the Code:
- “Financial stress or hardship” of a tenant is determined as the inability to generate sufficient revenue as a direct result of the coronavirus (including government-mandated trading restrictions) which cause the tenant to be unable to meet its financial and/or contractual (including retail leasing) commitments. Any tenant which is an eligible business for the purposes of the Commonwealth JobKeeper program (“SME tenants”) is automatically considered to be in financial distress under the Code.
- “Coronavirus period” means the period during which the JobKeeper program is operational.
For the Code apply:
- The lease must be a commercial, industrial, office or retail lease, and
- The tenant must have a turnover of $50 million or less and be suffering financial stress and hardship.
Where agreement can’t be reached between the parties in relation to rent relief, the matter should be referred (by either party) to the applicable state dispute resolution process for “binding mediation”. Presumably in Victoria that will be administered by way of the Office of the Small Business Commissioner.
The Code will be given effect through state legislation or regulation, and will come into effect on a date to be defined by the state government and continue for the period during which the JobKeeper program remains operational.
Further details of the Leasing Principles under the Code will be provided soon.
Author: Cathy Drake
Published: 9 April 2020