On 30 May 2020, the State Government adopted the Commercial Leasing Code of Conduct, and the new Commercial Tenancies (COVID-19 Response) Act 2020 came into effect, with a view to protecting commercial tenancies with SME tenants during the Coronaviraus (COVID-19) pandemic.
The “emergency period” under the Act, which was the period during which the Act applies, was previously due to end on 29 September 2020.
The State Government has recently formally extended this, so that the protections now continue until 28 March 2021.
Whom is protected?
The Act and applies to “small commercial leases”, which will include leases to for a retail shop or a “small business”.
A small business is a business which:
~ is operated by an individual, partnership of individuals or a private company (not public or listed);
~ has a relatively small market share;
~ is personally managed by the owners or directors; and
~ is not a subsidiary of a larger business.
While the code discusses eligibility based on entitlement to JobKeeper payments, the code only applies (with the force of legislation) to small businesses.
What does the Act do?
The Act contains a variety of protections. Most notably, it prohibits landlords from taking steps to terminate a small commercial lease, or call on any security under the lease, for failure to pay rent (or meet any other financial obligation) during the “emergency period”.
The Act also prohibits rent increases during the emergency period (other than rent determined by reference to turnover).
The Act does not, however, prohibit a landlord from issuing a default notice for non-payment of rent.
The Act also adopts the Commercial Leasing Code of Conduct introduced by National Cabinet.
What does the Code do?
The Code imposes a mandatory set of principles, to ensure landlords and tenants negotiate in good faith to agree temporary arrangements for their particular circumstances.
The mandatory leasing principles include:
~ Rent Reductions – Landlords must offer reduced rent (by waiver of rent or deferrals) proportionate to the tenant’s reduction in trade, and at least 50% of the total rent reduction must be by waiving rent;
~ Passing on benefits – Landlords must pass on any reductions in tax, rates and insurance, and any benefits from deferred loan repayments by the landlord’s bank;
~ Waiving outgoings – Landlords should waive outgoings payable by tenants for any period the tenant cannot trade, and may reduce services as required;
~ Extended repayment – payment of deferred rent must be spread over 2 years or the remainder of the lease (whichever is longer), and any other repayments should be spread over an extended period to avoid undue financial burden on the tenant and should not start until the COVID-19 pandemic ends or the lease expires (whoever is earlier);
~ No penalties – Landlords must not charge any penalties, fees, interest or other charges for any waived or deferred rent, or if tenants reduce opening hours or cease trading; and
~ Lease extensions – Tenant’s should be offered extensions of the term of the lease equivalent to the period of any deferred or waived rent.
There are further overarching principles of good faith that landlords and tenants should make themselves aware of in any negotiation or dealing in relation to temporary COVID-19 arrangements, which are set out in the Code.
How can we help?
Valenti Lawyers has extensive experience in negotiating and resolving commercial leasing disputes. If you have any questions about the Act or the Code, or would like advice about how it may apply to you as a landlord or tenant in your specific circumstances, we are more than happy to discuss your queries with you.
We can also assist in any negotiations with your landlord or with tenants, for temporary arrangements under the Code.
Please note, these comments are general in nature and are not intended as legal advice.