Property Australia

Commercial tenancy code of conduct

PROPERTY AUSTRALIA April 8, 2020

National Cabinet this week settled the detail of a mandatory code of conduct for small to medium enterprise (SME) commercial tenancies which have been impacted by the COVID-19 pandemic.  

After releasing its first version of leasing principles on 3 April, the National Cabinet moved to the implementation of a mandatory code of conduct for commercial tenancy which will be put in force by legislation or regulation by each state or territory government. 

The National Cabinet said its objective for the Code 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.  

“It is intended that landlords will agree tailored, bespoke and appropriate temporary arrangements for each SME tenant, taking into account their particular circumstances on a case-by-case basis.” 

The Code sets out good faith leasing principles to guide discussions between commercial landlords and tenants who have been significantly affected by COVID-19 crisis.  

It will apply to tenants who are participants in the Commonwealth Government’s JobKeeper program and have a turnover of less than $50 million.  

The Code requires owners to provide rental relief to qualifying tenants by the same proportion as the loss of revenue experience by the tenant. 

According to the Code, half of this rent relief should be given in the form of a rent waiver, while the other half can be deferral of rent spread over the life of the lease and not less than 24 months. 

The Property Council has been engaging intensely with governments around the country on these issues over the past fortnight, said chief executive Ken Morrison. 

“We recognise the importance of helping Australian commercial landlords and tenants deal with the difficult impacts of the pandemic period,” said Ken Morrison, Chief Executive of the Property Council of Australia. 

“The Code released by National Cabinet sets out principles to guide discussions between commercial landlords and tenants, and it asks commercial property companies to shoulder a lot of the financial burden. 

“There is no doubt that this will be difficult for some property companies, who also have their own financial commitments and obligations to meet. 

“We are pleased that National Cabinet has recognised that banks and financial institutions need to support commercial landlords with regard to their debt covenants. This is important. 

Morrison welcomed the removal of a principle in an earlier version which would have allowed tenants to terminate leases effectively at will. 

However, the National Cabinet announcement did not make any mention of land tax or other relief that is essential for both commercial landlords and tenants. 

“We’ll continue to work with state and territory governments on these issues, for which we understand more announcements should be made in comings day and weeks.” 

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