The Government has announced a mandatory code of conduct for commercial tenancies to support Small and Medium Enterprises (SME) affected by the COVID-19 pandemic. The policy will include a mutual obligation requirement on small and medium sized businesses and not-for-profit tenants to continue to engage their employees through the JobKeeper scheme where eligible, and if applicable, provide rent relief to their subtenants.

The Code and its principles will be implemented and regulated by the relevant state or territory legislation.

Eligible Tenants

Code of Conduct outlines a set of good faith leasing principles for commercial tenancies including (retail, office and industrial) between owners/operators/other landlords and tenants

This Code applies to tenants that are:

• a small-medium sized business with an annual turnover of up to $50 million (Eligible Tenants)
• eligible for the JobKeeper Payment (meaning the business has experienced at least a 30 per cent drop in revenue due to Covid-19 restrictions relative to a comparable period a year ago).

This applies from after 3 April 2020 (to be defined by each jurisdiction) for the period during which the JobKeeper programme is operational 

The intention is that landlords and tenants will agree on tailored and appropriate temporary arrangements for each SME tenant based on their circumstances on a case by case basis.

Agreed arrangements are to take into account the impact of COVID-19 pandemic on the tenant, with specific regard to its revenue, expenses and profitability. Some of the key overarching and leasing principles are listed below. If there is no agreement there will be a binding mediation process and we expect that this will draw on the existing state tenancy mediation processes

Expectations from Landlord

• Landlords must not terminate leases due to non-payment of rent

• Landlords must offer tenants proportionate reductions in rent payable in the form of waivers and deferrals  of up to 100% of the amount ordinarily payable, on a case-by-case basis, based on the reduction in the tenant’s trade during the pandemic period and a subsequent reasonable recovery period.

• Rental waivers must constitute no less than 50% of the total reduction in rent over the COVID-19 pandemic period.  For example, if the 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

• 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, whichever is the greater, unless otherwise agreed by the parties.

• Any reduction in statutory charges (e.g. land tax, council rates) or insurance will be passed on to the tenant in the appropriate proportion applicable under the terms of the lease.

• A landlord should seek to share any benefit it receives due to deferral of loan payments, provided by a financial institution

• No fees, interest or other charges should be applied with respect to rent waived nor punitive interest may be charged on deferrals in principles

• The risk of default on commercial leases is ultimately borne by the landlord. The landlord must not seek to permanently mitigate this risk in negotiating temporary arrangements envisaged under this code

Expectations from Tenant

• Tenants must remain committed to the terms of their lease, subject to any amendments to their rental agreement negotiated under this Code.

• 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

• 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.

• Tenants will need to provide relevant information to demonstrate how their circumstances have changed as a result of COVID-19 with comparative data. For example, can provide year to date Income Statement as an evidence for decline in sales or loss of clients/projects, info on any business interruption insurance or summary of major debt obligations and other relevant information depending on the nature of the business.

The Government is also waiving rents for all its small and medium enterprises and not-for-profit tenants within its owned and leased property across Australia.

The detailed Overarching and Leasing Principles can be found in the SME Commercial Leasing Principles or the Australian Small Business and Family Enterprise Ombudsman.

While there is currently no moratorium on land tax, Revenue NSW has put in place a number of measures to assist taxpayers, such as extending deadlines for payments and applying leniency for late payment. If you would like to apply for an extension, or set up an instalment plan, please go refer to Revenue NSW.