Mandatory Code of Conduct for Commercial Leases

At a press conference on Tuesday, 7 April 2020 the Prime Minister announced further details on the national mandatory code which sets out a set of good faith leasing principles which will apply to landlords and tenants.

A copy of the Code can be accessed here (from page 9 onwards).

Who does the Code apply to?

The Code will apply to commercial tenancies including retail, office and industrial. The code applies to tenants that are eligible for the JobKeeper payments and have a turnover of less than $50 million.

To read more about the JobKeeper eligibility, read our latest article “5 things you need to know about the JobKeeper Payment“.

What does it mean for my lease?

There are 14 leasing principles which landlords and tenants will need to consider when negotiating temporary arrangements to a lease.

Some of the key leasing principles include:

• Landlords must not terminate leases due to non-payment of rent during the COVID-19 period or a reasonable recovery period.
• Landlords cannot claim on your security deposit or bank guarantee for non-payment of rent.
• Rent will need to be waived in proportion to the reduction of business and the rent reduction must be at least 50%. It’s important to clarify that a rent waiver means that the rent does NOT need to be paid back at a later date.
• Any agreement on a deferral of rent will be paid back over a period of no less than 24 months or the remainder of the term of the lease, whichever period is greater. This means that if your lease was due to end in less than 24 months, you will still have a minimum 24 months to repay any deferred rent.
• Landlords will be legally required to engage with the tenant about their lease.
• In relation to outgoings, landlords should seek to waive these expenses where the tenant cannot trade from the premises.

What should I do now?

• If you are not in a position to pay your rent and outgoings due to the impact of COVID-19, you should contact your landlord and notify them of your position.
• You can start putting together a rent reduction proposal to your landlord taking into account the leasing principles in the Code.
• If you’re unsure on what to negotiate then consider getting legal advice to assist you with your negotiations.

How long will the Code apply for?

The Code comes into effect from 3 April 2020 and will continue for the period that the JobKeeper program remains operational.