Mandatory Code for Commercial Tenants and Landlords During COVID-19 Crisis

The Mandatory Code of Conduct for Commercial Tenancies (“the Code”), released by the Federal Government on 7 April 2020, which will apply to commercial leases of certain eligible small to medium enterprise (SME) tenants. It allows eligible tenants to be entitled for rent reductions in the form of waivers or deferrals to enable them to navigate the uncertain times of the COVID-19 pandemic. The Code aims to enforce a set of good faith leasing principles for negotiations between landlords and tenants where it relates to measures that both parties can agree on and implement to alleviate financial stress and hardship.

Objective of the Code

The objective of the Code is to ensure that: -

• landlords and tenants negotiate and agree upon temporary arrangements for each tenant, taking into account each of their particular circumstances;
• parties share the financial hardship arising as a result of the COVID-19 pandemic, in a proportionate and measured manner; and
• the turnover reduction of the tenant's business is reflected in any rental waiver to be agreed upon.

The intention of the Code is to aid the management of cashflow for tenants and landlords on a proportionate basis as a result of the impact of COVID-19, whilst seeking to appropriately balance the interests of tenants and landlords. The Government encourages landlords and tenants to work together to ensure business continuity and to facilitate resuming trading activities at the end of the pandemic by: -

• negotiating in good faith towards achieving a balance of interests and a mutually satisfactory outcome; and
• acting in an open, honest and transparent manner which includes providing sufficient and accurate information within the context of negotiations to achieve outcomes consistent with the Code.

Who Does It Apply To?

The Code applies to all SME tenancies that are suffering financial stress or hardship as a result of the COVID‑19 pandemic, where the tenant (referred to as SME tenants): -

• is eligible for the Commonwealth Government’s JobKeeper programme; and

• has an annual turnover of up to $50 million.

What financial stress and hardship means in this context is the inability of a tenant (whether individual, business or company) as a direct result of the COVID-19 pandemic to generate sufficient revenue, creating an impact on the tenant in meeting its financial or contractual commitments.

The Code however does not apply nor is it relevant to residential tenancies. The Government has introduced a moratorium on eviction of residential tenants, but where possible, residential tenants are still required to meet their rental payments. There is no other approach agreed upon to date by the National Cabinet with regard to residential tenancies.

If you are unsure of your rights and obligations as a SME tenant or a landlord the subject of an SME tenancy during this period of uncertainty, Straits Lawyers are here to help. Simply send us an email at info@straitslawyers.com or give us a call on 8410 9069 to arrange an appointment for an online interview.

Please note that this article does not constitute legal advice and Straits Lawyers will not be legally responsible for any actions you take based on this article.