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COVID-19 – Commercial Tenancies – legislative implementation of the Mandatory Code of Conduct

The Victorian government passed the COVID-19 Omnibus (Emergency Measures) Bill 2020 (Act), on Thursday 23 April 2020, which includes measures addressing a number of industries and legislative schemes, including commercial tenancies.

As noted in our earlier blog ‘COVID-19 Moratorium on Evictions of Residential and Commercial Tenants and Mandatory Code of Conduct’, on 8 April 2020, the Prime Minister announced that the National Cabinet agreed that states and territories would implement the Mandatory Code of Conduct (Code), in order to implement a common set of agreed leasing principles in relation to small to medium enterprise (SME) commercial tenancies.

The Code proposes that it will be implemented by the introduction of legislation or regulations  for the period of the COVID-19 epidemic (COVID-19),  to govern intervention to aid commercial tenancies suffering financial stress or hardship.  The legislation ultimately passed in each state and territory will not be identical.

In Victoria, the Act (as it relates to commercial tenancies) is generally consistent with the good faith leasing principles and requirements under the Code including for example, the eligibility criteria.

The Act is enabling legislation and allows for regulations to be created that give effect to the Code.

The detail will be in the proposed regulations and, at this stage, the release date of the regulations is not known, although they are expected to be presented to parliament very soon.

While statements and requirements in the Code are unclear in places, the Act has to an extent clarified some questions and defined terms, such as including a mechanism for penalties for non-compliance and defining what is an ‘eligible lease’.

What are the key components of the Act?

Some key components of the Act are as follows:

  • It allows the regulations to apply to commercial licences to occupy land in addition to commercial leases;
  • It applies to retail leases and non-retail commercial leases;
  • It defines an ‘eligible lease’ by reference to the criteria in the Code including an SME entity that has or had less than $50 million turnover and is an employer who qualifies and is a participant in the JobKeeper scheme (Eligible Lease);
  • The definition excludes a group of companies with an aggregate turnover above a prescribed amount (the detail will be in the regulations but we expect the turnover amount to be above $50 million) as well as other specified circumstances applying to the tenant in relation its connection with other entities;
  • It allows the regulations to provide for many of the requirements in the Code including:
  1. Prohibiting the termination of an Eligible Lease;
  2. Exemptions from obligations under an Eligible Lease or legislation (other than the Act);
  3. Deeming the provisions of the proposed regulations to form part of an Eligible Lease.
  • It allows the proposed regulations to provide for a mediation regime at the Small Business Commission; and
  • It allows the proposed regulations to impose penalties which may create offences for non-compliance (anticipated upon a reading of the Code);
  • The regulations may be made retrospective meaning they may apply from an earlier date, but no earlier than 29 Mach 2020; and
  • The Act and the proposed regulations will sunset in 6 months after the commencement of the legislation.

Questions and detail in the proposed regulations

Amongst many questions that arise regarding the operation and interpretation of the Code and the Act, it will be helpful to see how the regulations further prescribe the exclusion of commercial tenancies that are part of a group of companies by further definition.

We will need to see if the regulations provide for further details of exclusions that may apply.

As the regulations may have retrospective effect, it is currently unclear what effect this will have on any variation of an Eligible Lease negotiated and documented prior to the introduction of the Act and the regulations.

Applying good faith leasing principles under the Code to all leasing arrangements

It is important to be aware that the Code encourages negotiation in good faith generally between landlords and tenants, irrespective of the application of the National Code and any legislation or regulations made in response across the Australian states and territories. Good faith negotiation is a critical feature of the Code.

A copy of the Code containing the good faith leasing principles is available at: https://www.pm.gov.au/sites/default/files/files/national-cabinet-mandatory-code-ofconduct-sme-commercial-leasing-principles.pdf

Legal Certainty

We recommend that landlords and tenants start negotiating now (if they have not already done so) applying the good faith leasing principles under the Code.

As stated above, the Code provides that the spirit of the good faith leasing principles should apply to all leasing arrangements, not only to commercial tenancies afforded protection under the Code and the Act.

Legal certainty is required by way of documenting any agreement reached.

If you require assistance with tenancy law, please contact our Property Team at Burke & Associates Lawyers. To discuss further, please contact Kristy Muhlhan, Principal, kmuhlhan@burkelawyers.com.au, who heads our Property and Property Development Team, Annabel Viner, Special Counsel, aviner@burkelawyers.com.au, Steve O’Dor, Special Counsel. sodor@burkelawyers.com.au, Stewart Davis, Lawyer, sdavis@burkelawyers.com.au, or Peter Hall, Lawyer, phall@burkelawyers.com.au respectively, or by contacting our office on +61 3 9822 8588

Contacts

Kristy Muhlhan

Principal

Kristy Muhlhan

Principal
LL.B (HONS) GRAD DIP. L.P., GAICD.
Since 2014, she has been an owner and Principal of the firm and has mastered a broad range of essential commercial and business skills which go hand in hand with the work she does for...

Steve O’Dor

Special Counsel

Steve O’Dor

Special Counsel
Steve was admitted as a solicitor to the Supreme Court of Victoria and High Court of Australia in 2012. He predominantly practices in commercial litigation, general commercial and property law.

Stewart Davis

Associate

Stewart Davis

Associate
As well as property law, Stewart has had exposure to VCAT administration matters and commercial law, particularly servicing developer clients.

George Hanger

Associate

George Hanger

Associate
LL.B BA
George was admitted to legal practice in May 2015 after completing a Bachelor of Arts at the University of Melbourne and a Bachelor of Laws at Monash University.

Peter Hall

Lawyer

Peter Hall

Lawyer
Peter deals mainly with both residential and commercial conveyancing, and leasing agreements.

Emma Dickens

Paralegal

Emma Dickens

Paralegal
Emma previously completed a Bachelor of Legal and Dispute studies at RMIT University in 2015.