COVID-19: Details of the National Cabinets’ Mandatory Commercial Tenancies Code

The National Cabinet have finalised the Commercial Tenancies Code today and the Prime Minister has outlined the mandatory code of practice.

The mandatory code is part of the governments’ hibernation strategy to try and preserve businesses and the economy and protect it from the economic fallout from the coronavirus, COVID-19, pandemic.

It will differ from state to state and apply to landlords and tenants who are eligible for the Governments’ JobKeeper program and where turnover is $50 million or less.

Morrison has advised the code has the following principles:

• Landlords must not terminate the lease or draw on tenant security;
• Tenants must honour the lease;
• Landlords will be required to reduce rent proportionate to the trading reduction in the tenants business over the course of the pandemic, through a combination of waivers of rent or deferrals of rent;
• Waivers of rent must account for 50%, at least, of the reduction of the rental provided to the tenant during that that period;
• And deferrals must be covered over the balance of the lease term, and in no less period than 12 months.

“So if the lease term goes for 3 years you can amortise the cost of the rental deferral over that three year period after the pandemic period. But if the lease only has another 6 months to run then the tenant would have a minimum of twelve months after the pandemic period in order to cover the deferrals of the rental payments.”

This will be overseen by a binding mediation process run by the states and the territories.

The prime minister is expecting and requested banks to come to the party as well.

The intent of the code is to preserve the lease and the relationship. It keeps the tenants in the property and the lease in place, which underpins the value of the commercial property.

The code is applicable to many tenants and landlords and the negotiation process may be easier for tenants as the new code is in place.

Get it in writing

If you are going to renegotiate terms then you should be getting the terms in writing. This is especially true if you are the tenant. The terms should be clearly drafted and take into account the full agreement.

Ensuring that the agreement binds both parties and is clearly drafted will ensure that subsequent disputes do not arise. Ambiguous agreements and drafting is where we see most lease disputes arise it is important that you have the advice of a competent commercial lease lawyer.

Verbal agreements cannot be relied upon or upheld in court.

We can help

We have a team of highly experience lawyers in this space and are already working on behalf of our landlord and tenant clients as the “buffer”.

PCL Lawyers have represented and assisted both landlords and tenants alike in a broad range of leasing issues and disputes. We give concise and commercial legal advice to all our clients and are committed to achieving the best outcome for our clients.

For those not eligible for JobKeeper

For those who are not eligible for JobKeeper we can assist in negotiating with your landlord or tenant on your behalf. Larger businesses or those that have not had a steep reduction in turnover may still look to see what amendments can be made to their leasing arrangements.

READ MORE information for businesses and law changes due to COVID-19