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moreIn an announcement on 7 April 2020, Scott Morrison provided detail concerning the mandatory code of practice for landlords and commercial tenants in response to COVID-19.
The desired outcomes of the code appear relatively simple: to preserve the landlord and tenant relationship, to keep the tenant in the property, and to preserve the lease that underpins the value of the property for the landlord.
The code is part of the Government’s “hibernation strategy” to preserve as much of the foundations and pillars of Australia’s economy during the pandemic as possible to enable the economy to rebuild and grow once hibernation comes to an end.
Key attributes of the code
Referring to the combination of announcements, the key attributes of the code are as follows:
- The code will be mandatory for commercial tenancies where either the tenant or landlord has a turnover of less than $50m and meets the 30% loss of revenue threshold required to participate in the JobKeeper program;
- Under the code:
- landlords must not terminate the lease or draw on a tenants security;
- tenants must honour the lease;
- landlords will be required to reduce rent proportionate to the trading reduction in the tenants business throughout the pandemic (the Rental Reduction);
- the Rental Reduction will occur through a combination of rent waivers and rent deferrals;
- the rent waivers must account for at least 50% of the Rental Reduction provided to the tenant;
- the rent deferrals must account for the remainder of the Rental Reduction, with the deferred component required to be paid over the remaining term of the lease, but in no less than 12 months.
- The code will require “good faith” negotiations between the landlord and tenant and will be overseen by a binding mediation process administered by the states and territories;
- The code will be incorporated into state and territory legislation where appropriate;
- Those within the code will be afforded protection in relation to issues around eviction, claims, penalties or action on guarantees, and landlords will be protected from the lease being terminated on those grounds;
- Both local and international banks operating in Australia will need to come to the party to support the arrangements agreed between the landlord and tenant.
While the announcements give the property industry guidance on what to expect, the devil will be in the detail as to how effective the code will be in practice.
For more information
If you have any questions regarding the code of practice for landlords and commercial tenants, contact your local RSM adviser today.