We’ve had five separate teasers from the Prime Minister that something is coming in terms of a commercial leasing package, and finally there’s been an announcement on 7 April 2020 – the National Cabinet has agreed to a Commercial Leasing Code of Conduct. Whilst we haven’t yet been provided with the Code, some details have already been announced.
We summarise those key points below:
- The mandatory Code is still to be legislated on a Sate / Territories level; It will apply to tenancies where the tenant or the landlord is eligible for the Job Keeper program, who is in distress and with a turnover of $50 million or less;
- Landlords and tenants must agree on appropriate measures between themselves or submit to a binding mediation process run by the States or Territories;
- Landlords must not draw on tenants’ security;
- Neither landlords nor tenants are to terminate the lease;
- Rent is to be reduced in proportion to the decrease in the tenant’s revenue. This reduction shall be through a combination of rental waivers and deferrals;
- Any rent relief must constitute at least 50% rental waiver and any deferrals must be repaid over the remainder of the lease term or a period of at least 12 months (whichever is longer);
- Banks are asked to provide support to landlords; and
- The Code is intended to cover a period of approximately six months from 1 April, mapped to the term during which the government is intending to run the Job Keeper programme.
So what does that all mean? All landlords and tenants (where one party is eligible to apply for the job keeper programme) must negotiate a mutually acceptable rental reduction (in the form of waiver / deferral) or the matter can be taken to binding mediation run by the States or Territories.
Where agreed terms are reached between the landlord and tenant, those terms should be clearly documented in a legally binding lease variation deed or agreement so there is no dispute about what the intent of the parties were and so the parties can clearly demonstrate to have complied with the Code.
It is possible that a failure to negotiate an acceptable variation without going to mediation may render both parties ineligible for relief under the Job Keeper programme. This was foreshadowed by the Prime Minister in previous press conferences but has not yet been confirmed. The Prime Minister also reiterated that landlords were legally required to speak with tenants about rental arrangements and that, if they refused, they would “forfeit their way out of the lease” – but failed to clarify exactly what that meant.
As a final point, none of this is law at this stage. It first needs to be legislated by the relevant States or Territories. It is expected to move very quickly but that may still be another one or two weeks away. In the meantime, the broad outline of the proposed arrangements are relatively clear and should be sufficient for landlords and tenants, who fall into the target category, to begin discussions.