The national Code of Conduct promised to provide clarity as commercial landlords and tenants negotiate in good faith, but with states and territories now rolling out its implementation, uncertainties remain.
The National Cabinet’s Code of Conduct for commercial tenancies, released on 7 April, outlines a set of “good faith leasing principles” for negotiations between landlords and tenants.
The code applies to all tenancies with an annual turnover of up to $50 million that have suffered significant financial stress or hardship as a result of the Covid-19 pandemic.
The code’s objective is to share the cashflow impact of the pandemic on a “proportionate basis” (although not all jurisdictions have implemented this requirement). For example, a tenant suffering a 40 per cent decrease in turnover as a result of the Covid-19 pandemic would, in principle, be entitled to rent relief of 40 per cent, with at least half of this being by way of a rent waiver.
Despite the intention for the code to focus on smaller tenants, property leaders have expressed concern that some large tenants are looking to leverage the pandemic to gain permanent rent reductions.
Speaking at a Property Council livestream event recently, Dexus chief executive Darren Steinberg said his company had received many rent relief requests across its portfolio, but some of those were “opportunistic”. His company’s focus was on small-to-medium companies that could not make it through without assistance, while larger corporates with access to debt and equity markets should access their own equity before asking Dexus for relief. “Landlords shouldn't be the first port of call for these big operations”.
“There are a lot of questions about how you negotiate in good faith and the industry is looking for more clarification,” says MinterEllison’s partner Jakob Paartalu.
“Landlords, both big and small, are struggling to comply with legal obligations and manage brand, reputation and relationships with their customers. They want to do the right thing.”
Practical implementation of the Code has been handed down to state and territory governments who have been progressively making the legislative and regulatory changes to give it effect in each jurisdiction.
The Property Council’s divisional teams have been working intensively with governments and members to inform the design and implementation of fair and balanced measures, including relief from government taxes and charges for commercial property owners.
MinterEllison has been working around the clock to develop a compendium of legislation and regulation relating to the code. This real-time document provides state-by-state analysis of how the regulations work, and how they interact with land tax treatment, which also varies from state to state, and the impact of the zero threshold foreign investment regulations.
“The Property Council has worked very hard to represent the interest of members, but each state has its own way of doing things and it’s very hard to get consistency. It makes it very difficult for landlords and tenants negotiating across multiple jurisdictions,” Paartalu adds.
When landlords and tenants cannot reach agreement, the matter may be referred to state or territory leasing dispute resolution processes, but Paartalu says there is concern within the industry that a “flood” of disputes will head to mediation.
“This will only add to the management time spent by landlords and the angst associated with the unknown for tenants. Despite the differences between jurisdictions and any perceived gaps, there is a desire from all players, I think, for landlords and tenants to work it out sooner rather than later,” he says.
Also speaking at the Property Council's recent livestream event, Lendlease’s chief executive officer for property Kylie Rampa said the code has simplified dealing with tenants. “Landlords do recognise the stress and the strain on tenants,” Rampa said, and “everyone is collectively working together to find the best solution and nurse the industry through short-to-medium term pain”.
MinterEllison is releasing the compendium on the Code of Conduct for commercial tenancies next week and is making this available to Property Council members at no cost. The compendium will be updated as additional regulations are introduced in other states and territories.
The Property Council will also launch an ‘on demand’ series on the Code of Conduct next week. More information on both the compendium and the courses will be available in next week’s Property Australia.
In the meantime, join MinterEllison managing partner Virginia Briggs, Primewest’s executive chairman John Bond and AMP Capital's managing director for office and logistics Luke Briscoe at the Property Council’s next livestream event on Friday 15 May. We’ll dissect the legislative landscape around the country and discuss how landlords and tenants can move forward.
QLD: Adrian Rich
WA: Gehann Perera
SA: Stephen Hill
NT: Lachlan Drew
ACT: Edward Campbell
TAS: Max Cameron