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Coronavirus: Commercial Tenancies Code

Further to our COVID-19 blogs on the Federal Government led arrangements on employee standdownsnegotiating changes to commercial leases and the JobKeeper subsidy, the National Cabinet on 07 April 2020 agreed on a mandatory Commercial Tenancy Code previously foreshadowed as part of the “hibernation” strategy for Australia’s economy.

“preserve the lease, to preserve the relationship, keeps the tenant in their property and keeps the tenant on the lease, which is also good the the landlord… which underpins the value of those assets

The Code applies to tenancies where either the Lessee/Tenant or the Lessor/Landlord is eligible for the JobKeeper program.

The Code is based on a set of leasing principals intended as the Prime Minister says to operate such that it “preserves the lease, preserves the relationship, keeps the tenant in their property and keeps the tenant on the lease, which is also good the the landlord… that underpins the value of those assets“.

The overarching obligations are for landlords and tenants to work together in an honest, open and transparent manner and to negotiate in good faith on a lease by lease basis so as to mitigate the impact of the Coronavirus on the lease arrangements.

The Leasing Principles themselves include:

  • Landlords must not terminate the lease due to non-payment of rent during the pandemic period*
  • Landlords must not draw on a Tenant’s security (bank guarantee, personal guarantee or cash bond etc) during the pandemic period
  • Tenants must honour the Lease
  • Landlords must reduce rent proportionate to the trading reduction in the Tenant’s business over the course of the pandemic period through a combination of:
    • waivers of rent (accounting for at least 50% of the rental reduction); and
    • deferrals of rent (spread over the remaining time on a Lease and for no less than 24 months)
  • No interest, fees or charged are to be imposed  on the rent waived or deferred
  • Rent increases (other than Retail Leases based on turnover) are frozen during the pandemic period
  • Any statutory or insurance charges passed on to the tenant are to reduced in the appropriate proportion
  • Tenants should have an opportunity to extend the Lease period  of the rent waiver/deferment period
  • A binding mediation process will regulate these co-operative arrangements.

*The pandemic period is from 03 April 2020 and for the period during which the for the period during which the Commonwealth Government’s JobKeeper program remains operational.

To view the Prime Minster’s statement following the National Cabinet meeting here.

The States and Territories will legislate these arrangements as soon as is possible.

Banks are urged to support landlords in a similar manner.

Residential tenancies remain a State and Territory issue, not being determined by the National Cabinet. To register your business’s interest in the JobKeeper system, visit the Australian Taxation Office’s dedicated page.

FURTHER INFORMATION

For further information in relation to legal issues arising from Coronavirus or if you need to discuss how to best deal with commercial tenancy issues, please contact us on (02) 9521 2455 or email help@mckilloplegal.com.au.

This information is general only and is not a substitute for proper legal advice.

Please contact McKillop Legal to discuss your legal concerns or objectives.

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Commercial Leases

A commercial lease, simply put is the agreement between the owner of business premises (the lessor) to the tenant that is to occupy those premises (the lessee).

The terms of each commercial lease can and usually do differ depending on the nature of the property, the location and the use to which the premises are to be put. There are however many terms that are common to all leases, even if they may be drafted differently in each lease document.

Sometimes confusion arises as to whether a lease is of commercial premises as opposed to retail premises. Retail leases are covered by the Retail Leases Act and there are many additional obligations on the Lessor in relation to retail premises such as the provision of a Disclosure Statement, minimum lease term etc

Prior to entering into a lease, it is a good idea to obtain a condition report or at least take photos or video to show the condition of the premises as at the commencement date and to show what fixtures and fittings were in place.

Some key considerations in relation to a business or commercial lease include:

  • Development consent for the intended use of the premises
  • Term
  • Options to renew or buy
  • Rent
  • The process for and timing of rent reviews (CPI, market, fixed increase etc)
  • Outgoings
  • Security bonds
  • Director guarantees
  • Costs
  • Insurances
  • Repair and maintenance obligations
  • Lessee’s make good and refurbishment obligations on termination
  • Any pre-lease works/promises made
  • Assignment and sub-letting/licensing

It is not uncommon for the parties to enter into a Heads of Agreement or similar document whereby some or all of the above matters and more are documented briefly, such that the key terms are signed off as agreed, but it is usually important to ensure that this document itself doesn’t create a lease and is in fact subject to the parties negotiating and signing a formal written Commercial Lease.

Leasing can be complicated so it pays to seek the advice of a lawyer before entering into a Commercial Lease, an Agreement for Lease or a Heads of Agreement.

FURTHER INFORMATION

Craig Pryor is principal solicitor at McKillop Legal. For further information in relation to the leasing or licensing of business premises, commercial law or business related matters, contact Craig Pryor on (02) 9521 2455 or email craig@mckilloplegal.com.au.

This information is general only and is not a substitute for proper legal advice. Please contact McKillop Legal to discuss your legal concerns or objectives.

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