Page 62 - Print21 May-June 2020

Business Intelligence
The pandemic and
commercial leases
Lawyer Wal Abramowicz explains what the government’s new Commercial Leasing Code of Conduct means for your business
In response to the economic impact of the Covid-19 coronavirus, the government has released a new mandatory code of conduct covering
commercial leases during the pandemic period.
The code applies to commercial leases where the tenant’s turnover
is less than $50m per year. It is tied to the government’s JobKeeper programme and aims to regulate and provide for temporary arrangements between landlords and tenants in commercial properties to alleviate the burden of financial hardship
and, as it says, “to share, in a proportionate, measured manner, the financial risk and cashflow impact.”
The code will apply only for the duration of the pandemic period, which is the length of time for which the JobKeeper programme is in place.
Landlords and tenants are required to negotiate in good
faith, to act with honesty and transparency, and to assist each other in dealing with third parties such as banks and government institutions. The code recognises that each individual lease is different, and no one-size-fits-all approach will be effective, and therefore focuses on objectives and processes rather than outcomes.
The code includes:
• (BLOB) Landlords must not
terminate leases due to non-
payment of rent.
• Tenants must abide by the terms
of their leases, subject to any amendments agreed under the terms of the code, or else forfeit the protections of the code.
• Landlords must offer tenants waivers and deferrals of rent, proportional to any reduction in
the tenant’s trade. This may be
a reduction of up to 100 per cent where the tenant’s business has been closed entirely during the pandemic.
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• Any reduction must be at least 50 per cent by way of waiver rather than deferral.
• Rent deferrals must not be a lump sum payable after the pandemic period is over, but must be spread over the duration of the lease, or over two years, whichever is longer.
• No fees, interest, or other charges Wal should be charged on any waivers
Abramowicz, or deferrals of rent.
managing • Landlords must proportionately director, pass on to tenants any reduction Fox & Staniland in council rates, land tax or similar
government charges, and the landlord should similarly share any benefit received by way of deferred loan repayments from the bank.
• Landlords must not draw on a tenant’s security, such as a bond or bank guarantee, during the pandemic period.
The code recognises that each
individual lease is different, and no one-size-fits-all approach will be effective.
• Landlords agree to a freeze rent increases for the duration of the pandemic period.
• Landlords may not penalise tenants who reduce opening hours or cease trading during the pandemic period.
Many of these principles apply not only during the pandemic period, but for a reasonable time afterwards.
The amount of rent reduction is determined by the proportionate reduction in the tenant’s business during the pandemic. This is determined on the same criteria applied for eligibility in the JobKeeper programme, so a business which does not qualify for JobKeeper payments will also not qualify for a rent reduction under the code.
As rent reduction is proportional to the reduction in tenants’ trade
during the pandemic period, tenants will likely need to establish their eligibility by disclosing their financial positions and business records for both the pandemic period, as well as a reasonable period beforehand in order to assess the fall in trade.
At least half of any reduction which is given must be a waiver, and in order to ensure that the tenant truly receives the benefit of not having
to pay any amount waived, there
is a specific provision preventing landlords from recovering waived amounts over the term of the lease after the end of the pandemic.
Where landlords and tenants
cannot form an agreement under the code of conduct they must undergo binding mediation, through the relevant ombudsman or small business commissioner in their state or territory.
The introduction of the code means that a great many legal agreements between landlords and tenants will need to be negotiated and signed in a very short period of time – which is a recipe for confusion and error. Tenants will want to receive the contemplated rent reductions as quickly as possible, while landlords will want to ensure they comply with their obligations under the code, and obtain certainty as to how and when any deferred rent will be repaid. However, poorly worded documents signed in a rush can cause trouble and greater losses down the line. It is well worth doing things properly now.
In such circumstances it is important to seek professional advice before negotiating or signing any agreement which could affect you or your business for the next several years. 21
Wal Abramowicz is managing director of Fox & Staniland Lawyers, Gordon, NSW. Tel (02) 9440 1202, or email wal@foxstanisland.com.au