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New Mandatory Code of Conduct for Commercial Tenancies

On 7 April 2020, the National Cabinet announced a new mandatory Code of Conduct for commercial tenancies. The Code contains 14 good faith leasing principles that apply to small to medium sized enterprises with a turnover of $50M or less and that are eligible for the JobKeeper Payment scheme.

The Code applies to office, industrial and retail tenancies.

It is intended that landlords and tenants will agree to tailored arrangements taking into account the individual circumstances of the tenant.

Leasing Principles

  1. Landlords must not terminate leases due to non-payment of rent during the COVID-19 pandemic period (or reasonable subsequent recovery period).
  2. Tenants must remain committed to the terms of their lease, subject to any amendments to their rental agreement negotiated under this Code.
  3. Landlords must offer tenants proportionate reductions in rent payable in the form of waivers and deferrals of up to 100% of the amount ordinarily payable, on a case-by-case basis, based on the reduction in the tenant’s trade.
  4. Rental waivers (an abatement of rent) must constitute no less than 50% of the total reduction in rent. A greater proportion of a rental waiver should apply where failure to do so would compromise the tenant’s capacity to fulfil their ongoing obligations under the lease. (Regard must also be had to the Landlord’s financial ability to provide such additional waivers).
  5. Payment of rental deferrals by the tenant must be amortised over the balance of the lease term and for a period of no less than 24 months, whichever is the greater, unless otherwise agreed by the parties.
  6. Any reduction in statutory charges (e.g. land tax, council rates) or insurance will be passed on to the tenant in a proportionate manner.
  7. A landlord should seek to share any benefit it receives due to deferral of loan payments with the tenant in a proportionate manner.
  8. Landlords should seek to waive outgoings payable by a tenant, during the period the tenant is not able to trade. (Landlords reserve the right to reduce services as required in such circumstances).
  9. If negotiated arrangements under this Code necessitate repayment, this should occur over an extended period in order to avoid placing an undue financial burden on the tenant.
  10. No fees, interest or other charges should be applied with respect to rent waived or deferred.
  11. Landlords must not draw on a tenant’s security for the non-payment of rent during the period of the COVID-19 pandemic (and a reasonable subsequent recovery period).
  12. The tenant should be provided with an opportunity to extend its lease for an equivalent period of the rent waiver and/or deferral period.
  13. There is a freeze on rent increases for the duration of the COVID-19 pandemic and a reasonable subsequent recovery period, notwithstanding any arrangements between the parties.
  14. Landlords are prohibited from enforcing failure to trade clauses in leases due to the COVID-19 pandemic.

Mediation

Where the parties can’t reach agreement on leasing arrangements (as a direct result of the COVID-19 pandemic), the matter should be referred to the NSW Small Business Commissioner for binding mediation.

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