5 FAQ’s about the Leasing Code of Conduct

The National Mandatory Code of Conduct (“Code”) which was released by the National Cabinet on 7 April 2020 has now been adopted in legislation in New South Wales, Western Australia and South Australia as of 29 April 2020.

This article answer 5 Frequently Asked Questions about commercial leases during COVID-19 and how the Code applies.

1. Do I still need to pay rent during the pandemic period?

No, you don’t need to pay rent if your business has been affected by COVID-19 and the Code applies to your business.

In normal circumstances, the obligation to pay rent is an essential term of a lease and non-payment of rent allows a landlord to terminate a lease, re-enter the premises and evict the tenant and recover money from a bank guarantee or security deposit.

The first leasing principle in the Code places a ban on landlord’s terminating a lease due to the non-payment of rent during the pandemic period and a reasonable recovery period.

However, it’s important to keep in mind that a tenant is still required to comply with the substantive obligations of their lease to ensure they receive the benefit of the protections under the Code. If a landlord wished to terminate your lease for non-payment of rent, it is likely they would need to show that you had the financial capacity to continue to pay rent and the decision not to pay rent is not in compliance with your lease.

2. Do I need to keep my shop/office open or open at full trading hours?

No. If, for example, your business has suffered a significant decline in foot traffic or if you are unable to operate during your usual trading hours due to requirements of the Public Health Orders, you are not required to keep your shop or office open and you can reduce your core trading hours.

Leasing principle 14 provides that a landlord can’t apply any “prohibition or penalty” on a tenant for reduced opening hours or ceasing to trade.

3. Do I need to keep paying outgoings?

Leasing principles 6 – 8 state that landlords must pass on any benefit they receive in relation to the reduction of statutory charges (such as land tax and council rates) or deferral of loan repayments. A landlord is also required to seek to waive outgoings and expenses where the tenant is not able to trade.

4. What financial information do I need to provide a landlord?

One of the principles of the Code is that the parties will provide “sufficient and accurate information” to facilitate the negotiation of rent reductions. Sufficient and accurate information is defined as:

“information generated from an accounting system, and information provided to and/or received from a financial institution, that impacts the timeliness of the Parties making decisions with regard to the financial stress caused as a direct result of the COVID-19 event.”

Tenants should not feel obliged to give landlords detailed profit and loss statements for previous financial years. The level of information required to be provided is to substantiate the reduction in turnover that the tenant is claiming. If a tenant is unable to trade and has suffered a 100% reduction in turnover, it is likely to be sufficient to provide a sales report from a point of sale system showing no sales have been recorded for the month.

5. How long will rent reductions be in place for?

The Code will be adopted for a period of 6 months commencing from April 2020. However, the Code also expresses that parties should negotiate rent reduction measures for the pandemic period and a reasonable recovery period as well.