Corona Virus (COVID-19) Reform update: NATIONAL CABINET MANDATORY CODE OF CONDUCT
G&S Law Group can confirm that the purpose of this Code is to impose a set of good faith leasing principles for application to commercial tenancies between owners & tenants.
PURPOSE
G&S Law Group can confirm that the purpose of this Code is to impose a set of good faith leasing principles for application to commercial tenancies (including retail, office and industrial) between owners and tenants. G&S Law Group can assist you in determining if you are bound by the code of conduct.
ASSISTANCE WITH MEDIATION
G&S Law Group can assist where landlords and tenants cannot reach agreement on leasing arrangements (as a direct result of the COVID-19 pandemic). G&S Law Group can assist in the dispute resolution processes for binding mediation, including filing for mediation with the Small Business Commissioners/Champions/Ombudsmen where applicable. G&S Law Group has experience in NCAT proceedings for Leasing matters where the mediation processes become prolonged or frustrated.
EXAMPLE OF THE APPLICATION OF THE PRINCIPLE OF PROPORTIONALITY
The following scenarios are examples only, noting the circumstance of each landlord, SME tenant and lease are different, and are subject to negotiation and agreement in good faith.Examples of practical variations reflecting the application of the principle of proportionality may include, but are not limited to:
● Qualifying tenants would be provided with cash flow relief in proportion to the loss of turnover they have experienced from the COVID-19 crisis ie. a 60% loss in turnover would result in a guaranteed 60% cash flow relief.
● At a minimum, half is provided as rent free/rent waiver for the proportion of which the qualifying tenant’s revenue has fallen.
● Up to half could be through a deferral of rent, with this to be recouped over at least 24 months in a manner that is negotiated by the parties
● So if the tenant’s revenue has fallen by 100%, then at least 50% of total cash flow relief is rent free/rent waiver and the remainder is a rent deferral. If the qualifying tenant’s revenue has fallen by 30%, then at least 15% of total cash flow relief is rent free/rent waiver and the remainder is rent deferral.
● Care should be taken to ensure that any repayment of the deferred rent does not compromise the ability of the affected SME tenant to recover from the crisis.
● The parties would be free to make an alternative commercial arrangement to this formula if that is their wish.
LEASING PRINCIPLES
G&S Law group can assist you in negotiating and enacting appropriate temporary arrangements under this Code, the following principles will be applied shortly on a case-by-case basis:
1. Landlords must not terminate leases due to non-payment of rent during the COVID-19 pandemic period (or reasonable subsequent recovery period).
2. Tenants must abide by substantive terms of their lease or they forfeit any protections provided to the tenant under this Code.
3. Landlords must offer tenants proportionate reductions in rent payable in the form of waivers and deferrals of up to 100%, based on the reduction in the tenant’s trade.
4. Rental waivers must constitute no less than 50% of the total reduction in rent payable and should constitute a greater proportion where failure to do so would compromise the tenant’s capacity to fulfil their ongoing obligations under the lease agreement. Regard must also be had to the Landlord’s financial ability to provide such additional waivers. Tenants may waive the requirement for a 50% minimum waiver by agreement.
5. Payment of rental deferrals by the tenant must be amortised over the balance of the lease term and for a period of no less than 24 months.
6. Any reduction in statutory charges (e.g. land tax, council rates) or insurance will be passed on to the tenant.
7. A landlord should seek to share any benefit it receives due to deferral of loan payments.
8. Landlords should where appropriate seek to waive recovery of any other expense (or outgoing payable) by a tenant, under lease terms, during the period the tenant is not able to trade. Landlords reserve the right to reduce services as required in such circumstances.
9. If negotiated arrangements under this Code necessitate repayment, this should occur over an extended period in order to avoid placing an undue financial burden on the tenant. No repayment should commence until the earlier of the COVID-19 pandemic ending (as defined by the Australian Government) or the existing lease expiring, and taking into account a reasonable subsequent recovery period.
10. No fees, interest or other charges should be applied with respect to rent waived in principles #3 and #4 above and no fees, charges nor punitive interest may be charged on deferrals in principles #3, #4 and #5 above.
11. Landlords must not draw on a tenant’s security for the non-payment of rent during the period of the COVID-19 pandemic and/or a reasonable subsequent recovery period.
12. he tenant should be provided with an opportunity to extend its lease for an equivalent period of the rent waiver and/or deferral period outlined in item #2 above. This is intended to provide the tenant additional time to trade, on existing lease terms, during the recovery period after the COVID-19 pandemic concludes.
13. Landlords agree to a freeze on rent increases (except for retail leases based on turnover rent) for the duration of the COVID-19 pandemic and a reasonable subsequent recovery period, notwithstanding any arrangements between the landlord and the tenant.
14. Landlords may not apply any prohibition on levy any penalties if tenants reduce opening hours or cease to trade due to the COVID-19 pandemic.