The effects of the pandemic COVID – 19 are being felt across all sectors and residential as well as commercial tenancies are no exception to that.
In a media statement yesterday, the Prime Minister announced that the National Cabinet agreed that states and territories would implement a mandatory Code of Conduct (Code), to implement a common set of principles agreed by the National Cabinet on 3 April 2020 in relation to commercial tenancies, including retail, office and industrial tenancies.
In addition, to deal with the current financial distress the National Cabinet met on 29 March 2020 and decided to impose a temporary moratorium on evictions of commercial and residential tenants in financial distress who are unable to meet their commitments over the next six months.
The National Cabinet further proposed that the affected parties come together to discuss ways of business survival. It agreed a common set of principles, endorsed by Treasurers, to underpin and govern intervention to aid commercial tenancies during this period. In the media statement on 29 March 2020 the Prime Minister announced that the principles are as follows:
- a short term, temporary moratorium on eviction for non-payment of rent to be applied across commercial tenancies impacted by severe rental distress due to coronavirus;
- tenants and landlords are encouraged to agree on rent relief or temporary amendments to the lease;
- the reduction or waiver of rental payment for a defined period for impacted tenants;
- the ability for tenants to terminate leases and/or seek mediation or conciliation on the grounds of financial distress;
- commercial property owners should ensure that any benefits received in respect of their properties should also benefit their tenants in proportion to the economic impact caused by coronavirus;
- landlords and tenants not significantly affected by coronavirus are expected to honour their lease and rental agreements; and
- cost-sharing or deferral of losses between landlords and tenants, with Commonwealth, state and territory governments, local government and financial institutions to consider mechanisms to provide assistance.
It is expected that the fundamentals of these principles will get translated for the purpose of residential tenancies.
In the media statement on 7 April 2020, the Prime Minister explained the purpose and application of the Code:
The purpose of the Code is to impose a set of good faith leasing principles for application to commercial tenancies (including retail, office and industrial) between owners/ operators/ other landlords and tenants, in circumstances where the tenant is a small-medium sized business (annual turnover of up to $50 million) and is an eligible business for the purpose of the Commonwealth Government’s JobKeeper program.
National Cabinet agreed that there would be a proportionality to rent reductions based on the tenant’s decline in turnover to ensure that the burden is shared between landlords and tenants. The Code provides a proportionate and measured burden share between the two parties while still allowing tenants and landlords to agree to tailored, bespoke and appropriate temporary arrangements that take account of their particular circumstances.
The Code will be implemented by the introduction of legislation or regulations in each state and territory. It includes guidelines for the parties to negotiate solutions in relation to the terms of the lease in light of financial distress caused by COVID-19. It provides that where a solution cannot be agreed, the matter should be referred to dispute resolution processes and binding mediation conducted by the relevant authority in each state and territory.
A key objective of the Code is:
- to share, in a proportionate, measured manner, the financial risk and cashflow impact during the COVID-19 period; and
- balance the interests of tenants and landlords.
Legislation is yet to be passed in Victoria to give effect to the moratorium on evictions and the Code. The Code is intended to complement the legislation during the COVID-19 crisis.
The Code comes into effect in all states and territories from a date following 3 April 2020, being the date the common set of principles were agreed by the National Cabinet and will be defined by each state and territory.
The principles set out above do not end the obligation of the tenant to pay rent as the moratorium is of a temporary nature which is expected to be for a period of six months with a possibility of extension.
In the present scenario, we strongly advise that landlords and tenants discuss and consider their particular proposed arrangement in the light of their existing lease. The best scenario is mutual support and co-operation by the landlord and tenant during the unexpected pressures arising from COVID-19. Each arrangement will need to be tailored to the particular circumstances.
If you require assistance with tenancy law, please contact our Property Team at Burke Lawyers. To discuss further, please contact Kristy Muhlhan, Principal, who heads our Property and Property Development Team