New Obligations of Tenants and Landlords During Coronavirus (COVID-19) Pandemic
By Jenny Tran 09/04/2020
The novel coronavirus (COVID-19) outbreak has established itself as a worldwide health and economic pandemic. It has impacted every one of us in unprecedented ways from how we go about our daily lives to how we earn a living.
During this incredibly difficult time, we at T Lawyers are consciously aware that our clients with small to medium businesses have been among the most significantly affected as a number of non-essential service businesses have been forced to close indefinitely or have trading restrictions imposed. At the same time, our landlord clients are also inundated with requests from tenants for rent relief. Over the past weeks we have been assisting our tenant clients in requesting for rent relief from their landlords and at the same time keeping a close eye on the progressing rollout of Government assistances in response to the pandemic.
On 7 April 2020, the Government announced a mandatory Code of Conduct for Commercial Tenancies which recognises the struggle of tenants in commercial tenancies and is aimed at helping relieve their current financial burden.
What is the Code of Conduct for Commercial Tenancies?
The Code of Conduct (‘the Code’) is a set of good faith leasing principles which landlords and tenants must follow when dealing with their commercial tenancies. Its purpose is to facilitate negotiations quickly between landlords and tenants taking into account both parties’ interests and their specific circumstances.
On a case by case basis, the Code provides the following leasing principles to be followed by landlords and tenants:
- Rent reduction (of up to 100%) in proportion to your loss and expenses and based on your reduction of trade during the pandemic period and a subsequent reasonable recovery period;
- Rent reduction is to be paid by waivers and deferrals whereby waivers must account for at least 50% of the total rent reduction over the pandemic period and deferrals are to be paid over a period of at least 2 years;
- No termination of leases due to non-payment of rent during the pandemic period;
- No fees, interests or other charges shall apply to waived and deferred rent;
- No drawing upon the bank guarantee or cash bond during the pandemic period;
- A freeze on rent increases during the pandemic period and subsequent reasonable recovery period (excluding turnover leases);
- No penalties if you reduce your trading hours or cease trading due to COVID-19;
- Pass any reduction of rates or insurance charges, etc. proportionately to you;
- Share any benefit from deferrals of loan repayments proportionately to you;
- An opportunity to extend your lease for a period equivalent to the rent reduction period; and
- Where appropriate, waive recovery of outgoings or other expenses payable by you under the lease if you are unable to trade.
Are All Tenants Eligible?
No, not all tenants are eligible.
The Code will only apply to tenants who:
- Are small or medium sized businesses;
- Have an annual turnover of $50 million or less; and
- Are eligible for the JobKeeper subsidy.
This effectively means that you must demonstrate your turnover is likely to or has declined by at least 30%.
What Does This Mean for a Tenant?
If you are a tenant whose business has been significantly affected by the COVID-19 pandemic and you meet the eligibility criteria under the Code, then the Code assists the tenant in approaching the landlord to negotiate and reach an arrangement for some financial assistance on a case by case basis.
The Tenant should consider things such as:
- What is the loss of income you have suffered as a result of the pandemic?
- Are you eligible and have applied for any other Government stimulus assistance?
- Is there anything you can do to mitigate your losses?
- Do you have business interruption insurance and if yes, have you tried talking to your insurance broker about the possibility of making a claim for your loss?
As the Code seeks to balance both the interests of the landlord and tenant, if you seek to rely on the Code then you must also abide by the following principles:
- You must continue to abide by the lease terms;
- Negotiate in good faith with the landlord towards a mutually satisfactory outcome; and
- Cooperate with the landlord by providing sufficient and accurate information as required.
What Does This Mean for a Landlord?
If you are a landlord, you must be aware of your new obligation to participate in negotiations to assist your tenants through this difficult time. The Code was designed to achieve this in a mutually beneficial way by allowing negotiations to be considered on a case by case basis. Such considerations may include:
- Whether the tenant has been negatively affected by the COVID-19 pandemic;
- How long the lease has left;
- Whether the tenant is holding over;
- Whether the tenant is in administration or receivership; or
- Whether the tenant is already in arrears.
After considering the particular lease’s circumstances, the applicable leasing principles will be applied in negotiating with the Tenant.
What If I Can’t Reach an Agreement with My Tenant or Landlord?
If you aren’t able to reach an agreement with your tenant or landlord according to the principles of the Code then you should refer your matter to mediation for a binding decision.
However, note that parties must not use the mediation process in an effort to ‘prolong or frustrate’ the reaching of an amicable resolution outcome.
With the introduction of the Code, tenants and landlords are more than ever encouraged to work together as soon as practicable to enter into an arrangement that will drive towards the recovery of affected businesses after the COVID-19 pandemic is over. Landlords are to endeavour to provide as much assistance affordable to their tenants while tenants need to keep in mind that negotiations must be a two way street and they must still abide by the lease terms.
As the circumstances of every lease and business are unique, if you are either a tenant or landlord whose lease or business has been impacted by the COVID-19 pandemic it is vital that you have a well-informed understanding of how these new Government measures will affect you and what you may need to do to ensure that you comply.
For further information or if you wish to seek legal advice on your lease matter, please feel free to consult our team at T Lawyers.
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T Lawyers Pty Ltd is a general practice law firm founded by Pamela Nhi Tieu in 2008 as a spin off of her former partnership practice Butts & Barkley Solicitor. After several years of growth and building a reputable name for T Lawyers, the firm then acquired a number of key competitor law practices such as Nguyen Lawyers and Le & Associates. Therefore T Lawyers today is an amalgamation of several key law firms that were practising in the South West Region of Brisbane between 2000 and 2012. Our paramount objective is to help and protect our client to the fullest extent of the law.