The Government have announced a mandatory Code of Conduct which outlines a set of principles commercial landlords and tenants must operate within when negotiating relief for tenants experiencing financial stress as a result of the COVID-19 pandemic.

Under the Code, Tenants and Landlords should share, in a proportionate, measured manner, the financial risk and cashflow impact during the COVID-19 period.

These regulations will apply for the period the JobKeeper scheme remains operational.

A summary of the principles;

• Tenants must have an annual turnover of less than $50 million per annum (pre-COVID-19)
• The tenant must be eligible for the JobKeeper Payment
• Landlords and tenants must negotiate in good faith
• The agreement must cover both the period of the pandemic and a reasonable recovery period
• Landlords must not terminate leases due to non-payment of rent
• Tenants must remain committed to the terms of their lease
• Landlords must offer qualifying tenants with cash flow relief in proportion to the loss of trade they have experienced;
  • At a minimum 50% of this reduction is provided as a rent free/rent waiver
  • With the remainder offered as a deferral of rent, or as negotiated
• Payment of the rental deferrals can be amortised over the greater of the balance of the lease or for a period of no less than 24 months
• The landlord should seek to share any benefit it receives due to deferral of loan payments provided by a financial institution as part of the COVID-19 response
• Landlords should, where possible, waive recovery of other expenses or outgoings by a tenant during the period the tenant is not able to trade
• No fees or charges should be applied on any waived payments
• Landlords must not draw on tenant’s security for the non-payment of rent
• Landlords agree to a rent increase freeze

Consider a tenant with a $4,000 per month lease who suffers a 70% reduction in turnover:

A copy of the Code can be viewed here 

For further information please contact our office on (03) 5443 8888 or email us at mgr@mgr.com.au