Leases and COVID-19 Update

Following on from our recent article, the Federal Government has announced a mandatory Code of Conduct relating to commercial leases during COVID-19 with the intention for these measures to be legislated in the coming days and weeks in each state.

This code applies to all tenants who are suffering financial stress or hardship as a direct result of the COVID-19 pandemic. This automatically applies to tenants who are eligible for the Commonwealth Government’s Jobkeeper scheme previously announced. The code will be applicable from 3 April 2020 and will continue for the period which the Jobkeeper scheme remains operational as set by the Federal Government.

In addition to the eviction moratorium that has been previously announced and as set out in our previous article there are a number of additional leasing principles which must be adhered to. Generally, the position remains that landlords must not terminate leases due to a tenant’s failure to pay rent during the pandemic. It is important to note however that tenants are required to continue to honour the terms of their lease and any failure to comply with those terms will result in a forfeiture of any protection provided by the code.

In relation to rent, landlords will be required to offer tenants a proportionate reduction in the rent payable to be made up of a combination of rental waivers and deferrals of up to 100% ordinarily payable based on the reduction in the tenants trade (revenue) during the COVID-19 pandemic. This will also extend to any subsequent reasonable recovery period once the pandemic has ended. The rental reduction must be made up of not less than 50% of the total reduction as a waiver of rent with the balance reduction to be made up by deferred payments to be amortised over the balance of the lease term and for a period of not less than 24 months unless otherwise agreed by the parties. In addition, regard must be had for the landlord’s financial ability to provide any waivers of rent. For example, where a landlord is required to waive a minimum of 50% of the total rent payable which would result in financial distress for the landlord the parties will be required to reach an agreement on a case by case basis. Tenants may elect to waive the requirement for a 50% minimum rental waiver.

Where there are any reductions in statutory charges such as land tax or rates and any reduction in insurance premiums these benefits must be passed on to the tenant in an appropriate amount pursuant to the terms of the lease. In that regard, in Queensland Land Tax waivers have been announced.

In addition to this, where a landlord receives any other benefit it may have through any other Government initiatives or as a result of loan deferrals these should be passed on to the tenant where appropriate. Further consideration should be given to waiving any requirement for a tenant to contribute to outgoings where they are not able to trade or proportionate to their limited ability to trade.

Where a rental increase is due during the pandemic and subsequent recovery period the code provides that landlords should agree to a freeze on rent increases.

The intention of the code is to ensure that all parties are negotiating in good faith and with a common view to ensure that businesses are able to continue when the current pandemic ends. All parties should discuss and negotiate appropriate resolutions on a case by case basis. However, where agreement cannot be reached the matter should be referred to mediation to resolve any disputes in relation to the application of the code.

If you are concerned or have any questions in relation to the new measures imposed by the Federal Government under the Code of Conduct announced and wish to discuss this matter further, please contact our office on 4153 0000 to speak with one of our experienced property lawyers.

Danielle Britton