Code of Conduct Brings Relief for Commercial Tenants

On Tuesday 7 April, the National Cabinet released its “Mandatory Code of Conduct” setting out principles to apply to varied terms to be agreed between landlords and tenants during the COVID-19 pandemic (the Code). The Code applies to all tenants with an annual turnover of up to $50 million who are suffering financial stress as a result of the COVID-19 pandemic (as defined by their eligibility for the Commonwealth Government’s JobKeeper programme (SME tenants).

The Code does not prescribe exact terms that landlords and tenants must comply with but contemplates landlords and tenants negotiating appropriate temporary arrangements taking into account the relevant circumstances on a case-by-case basis.

It is therefore critical that landlords and tenants are properly advised as to their rights in order to best negotiate outcomes compliant with the Code and to ensure that such agreement is appropriately documented via a deed of variation of lease.

Morrows Legal has the experience and technical skills to ensure the proposed variation of lease is in accordance with the Code and is properly documented to avoid potential disputes which could result in termination of the lease or significant damages claims.

Morrows Legal is working closely with tenant and landlord advocates who have a deep knowledge of the current leasing market and the impacts of the Code.  This allows our mutual clients to put their best foot forward and negotiate from a position of strength.

The Code contemplates:

• a prohibition on landlords terminating leases for non-payment of rent during the pandemic period;
• tenants remaining committed to the terms of their lease (as varied as contemplated by the Code);
• landlords offering proportionate reductions in rent payable in the form of waivers (to be not less than 50% of the total reduction) and deferrals, based on the reduction in the tenant’s trade during the pandemic period and subsequent recovery period (Pandemic Period);
• reduced outgoings recoverable by landlords;
• an option for the tenant to extend its lease for a period equivalent to the Pandemic Period;
• a freeze on rent increases during the Pandemic Period; and
• tenants being allowed to reduce opening hours or cease trading during the Pandemic Period without landlords being entitled to terminate the lease or impose any penalties.

The Code is to be given effect through relevant State and Territory legislation and will apply from a date after 3 April, 2020, as determined by the relevant State or Territory.

How the Code applies in particular circumstances and what outcome should be reached will be determined on a case by case basis and we would expect that all SME Tenants and all landlords of SME Tenants should be taking legal and commercial advice to finalise variations of their current leases.

Please contact Adam Neylon of Morrows Legal to discuss your next steps:

Direct dial: 03 9134 3543

Email: aneylon@morrows.com.au