The economic impact of COVID-19 on business generally, and commercial leasing arrangements has been the focus of many landlords, tenants and governments.
On 7 April 2020, the Federal Government released its much-anticipated Mandatory Code of Conduct – SME Commercial Leasing Principles during COVID-19 (the Code).
The Code adopts and builds on principles emanating from National Cabinet Meeting discussions concerning commercial tenancies and is to be implemented by states and territories through legislation or regulation. It imposes a set of leasing principles to apply to commercial tenancies (retail, office and industrial) between owners / operators / other landlords and tenants, in circumstances where the tenant is an eligible business – a small-medium sized business (with annual turnover of up to $50 million) that, due to financial stress as a result of the COVID-19 pandemic is eligible for the Commonwealth Government’s JobKeeper programme.
For a franchise, the $50 million threshold applies at the franchisee level, and for retail corporate groups, the threshold applies at the group level.
The Code is intended to apply for the period during which the Commonwealth JobKeeper program remains operational.
The Code’s purpose is ‘to share, in a proportionate, measured manner, the financial risk and cashflow impact during the COVID-19 period whilst seeking to appropriately balance the interests of tenants and landlords.’
The mutual benefit of landlords and tenants implementing measures to foster business continuity is acknowledged, and it is anticipated they will negotiate transparently and in good faith to reach tailored solutions.
Agreed outcomes should consider the financial impact of the COVID-19 pandemic on the tenant (its revenue, expenses and profitability) with appropriate arrangements having regard to the present impact and a reasonable recovery period.
Effectively, the Code enables eligible commercial tenants to receive rent relief in the form of waivers or deferrals (proportionate to trading reduction of their business) to help them survive the pandemic and beyond.
The Code’s Leasing Principles should be applied, on a case-by-case basis, when negotiating temporary arrangements. Key principles include:
Tenants and landlords are commercially reliant on each other and should negotiate in good faith to reach practical solutions that will sustain both, not only during the pandemic, but into the future. Many negotiations will be challenging and complex.
Negotiations should consider:
Negotiations can be facilitated with the assistance of a commercial lawyer and agreed variations documented in writing and, where relevant, registered on the title of the leased premises.
As the present crisis continues to evolve, so too do the measures to address the numerous economic challenges faced. It is yet to be seen how the states and territories will incorporate the Code into their various laws and regulations.
In preparation for the implementation of these measures, New South Wales has enacted the COVID-10 Legislation Amendment (Emergency Measures) Act 2020 (NSW) to allow regulations to be made under key Acts such as the Retail Leases Act 1994 (NSW). It is likely that other states and territories have already or will introduce similar laws.
We are here to assist throughout these difficult times and encourage tenants and landlords financially impacted by the coronavirus to contact us for independent tailored advice and assistance.
If you or someone you know wants more information or needs help or advice, please contact us on (02) 9274 8820 or email email@example.com.
This material incorporates information based on our understanding of proposed or pending measures to address the impacts of Coronavirus (COVID-19) and may continue to change as developments unfold.