Mandatory Industry Code for Commercial and Retail Leases

SME commercial leasing principles during COVID-19.

Mandatory Industry Code

The Code will be legislated and managed by the States and Territories and will be subject to binding mediation.

The two core principles underpinning the Code will be good faith and proportionality, with landlords and tenants urged to work together on how to best manage rent relief going forward.

Landlords and tenants share a common interest in working together, to ensure business continuity, and to facilitate the resumption of normal trading activities at the end of the COVID-19 pandemic during a reasonable recovery period.

Who does the code apply to?

  • The code will apply to tenants with a turnover of $50m or less.
  • Tenants that have experienced a 30% or greater loss in revenue.
  • Tenancies where the landlord or tenant are participating or will participate in the JobKeeper program.

Rent relief main points.

  • Landlords are expected to negotiate in good faith and ‘share the pain’.
  • Landlords and tenants are expected to act in an open, honest and transparent manner, and provide sufficient and accurate information to each other.
  • The rent relief should be proportionate to the reduction in turnover and should comprise waivers and deferrals.
  • The relief also applies to outgoings which should be reduced in proportion to the reduction or waived if a tenant is no longer able to trade.
  • Waivers must account for at least 50% of the reduction.
  • Any recoupment of deferred rent will be over the duration of the lease period or a minimum of 24 months. This means if a tenant has six months left on their lease, they should be offered a 24-month period to pay any deferred rent.
  • There is a freeze on rent increases during the period when the code applies.
  • Landlords cannot terminate a lease on the basis of non-payment, nor dip into bonds to cover unpaid rent. Those who choose not to engage may forfeit themselves out of the lease.

Tenants are expected to honour their obligations under a lease (i.e. they can’t just walk away).

Full copy of Code can be found here: https://www.pm.gov.au/sites/default/files/files/national-cabinet-mandatory-code-ofconduct-sme-commercial-leasing-principles.pdf

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