MANDATORY CODE OF CONDUCT FOR COMMERCIAL AND RETAIL TENANCIES

The Prime Minister announced the creation of a mandatory code of conduct in relation to commercial and retail tenancies (the Code). The announcement came today following the National Cabinet meeting. The Code will be given effect through legislation or regulation by the individual States and Territories.

With the purpose of imposing a set of good faith leasing principles for application to commercial tenancies, the Code applies to all commercial tenancies (retail, office and industrial) that are financially impacted by the COVID-19 pandemic. The key elements of the Code are as follows:

Eligibility

The Code will apply to a tenant or landlord:

• With turnover of less than $50 million; and
• Who is a participant in the Federal Government’s JobKeeper Payment program.

Guiding Principles

The Code provides for the following guiding principles:

• Landlords and tenants will engage in good faith negotiations to agree bespoke arrangements for managing the financial impact of the COVID-19 crisis;
• Parties will provide appropriate assistance to each other in the negotiation of arrangements related to the tenancy with other stakeholders, such as Governments and banks.
• Proportionality Principle should apply – that is, any reduction in rent should proportionally reflect the reduction in turnover.

To encourage landlords to sign up to the Code, State and Territories have agreed to look at providing certain land tax waivers and deferrals. Landlords must pass on the benefits of such relief to tenants.

If landlords and tenants are unable to reach agreement, mediation will be provided through the relevant State and Territory mechanisms.

Leasing Outcomes

The Code provides the following leasing principles to be considered by landlords and tenants:

• Prohibition on termination of leases for non-payment of rent;
• Tenants to abide by the terms of their lease, subject to any amendments;
• Landlords to offer proportionate reductions in rent based on financial disruption incurred by the tenant;
• Rent waivers must account for at least 50 percent of the rent reduction;
• Rent deferrals would be repayable over the remaining term of the lease, or a minimum 24-month period, whichever is greater.
• Landlords to share the benefit it receives due to loan payment deferrals or the like;
• Landlords should waive recovery of outgoing type expenses (such as rates);
• Prohibition on landlords charging interest on unpaid rent or from making a claim on a bank guarantee or a security deposit for non-payment of rent;
• Tenants should be availed the opportunity to extend lease terms to meet rent waiver or deferral periods;
• Landlords should freeze any rent increases; and
• Penalties or prohibitions on changes to tenant operating hours or ceasing to trade should not be permitted.

It is intended that these measures will apply, where appropriate for the duration of the pandemic period.

Code Administration

The Code will be supported and administered by relevant state-based Administration Committees with representatives from major landlord and tenant advocacy groups.

It is also expected that the States and Territories will seek to remove any legislative barriers or administrative hurdles to enable these measures to be agreed and implemented by the parties.

It should be noted that residential tenancies will not be covered by the Code and instead these will be regulated by the State and Territory Governments.

The Code comes into effect in all states and territories from a date after 3 April 2020, as defined by each relevant jurisdiction.

The detailed information underpinning this announcement is included in the attached media release - https://www.pm.gov.au/sites/default/files/files/national-cabinet-mandatory-code-ofconduct-sme-commercial-leasing-principles.pdf

For further information regarding the announced measure, please contact the PVW Partners team.

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