Flagged last week, the Prime Minister said the state treasurers have agreed on a code for commercial tenancies for small to medium businesses, with the aim to ensure tenancies are maintained throughout the hibernation period.
PM Scott Morrison said: “It is agreed by the national cabinet today that a mandatory code will be legislated and regulated in each state and territory jurisdiction.
“That mandatory code will apply to tenancies where the landlord or tenant is eligible for the JobKeeper program and where they have a turnover of $50 million or less.”
The $50 million annual turnover threshold will be applied in respect of franchises at the franchisee level, and in respect of retail corporate groups at the group level — rather than at the individual retail outlet level.
Designed to protect SMEs
The PM explained that the code is designed to protect the small and medium enterprises, be they a tenant or a landlord.
Under the code, landlords will be required to reduce rent proportional to tenants’ trading reductions via waivers and lease extensions.
“The code brings together a set of good faith leasing principles. Landlords must not terminate the lease, and tenants must honour the lease,” the PM said.
“Landlords will be required to reduce rent proportionate to the trading reduction in the tenant’s business through a combination of waivers of rent and deferrals of rent, over the course of the pandemic period.”
He clarified that waivers of rent must account for at least 50 per cent of the of the total reduction in rent payable, while deferrals must be covered over the balance of the lease period and for no less than 12 months.
The arrangements will be overseen by binding mediation process run by the states and territories, Mr Morrison said.
“The point here is simple: it’s the same request we made of landlords and tenants about 10 days or so ago, and that is that they sit down and work it out,” the PM said.
Overall, he added, the aim of the code is to “preserve the lease, preserve the relationship” while keeping the tenant in their property.
“This is seen as a proactive, constructive and co-operative mechanism for landlords and tenants to see this through together.”
PM’s plea to international banks
The PM once again reiterated that banks must do all they can to support landlords, sending a special plea to their international peers.
“This must be shared. Banks also must come to the table and provide the support to the landlords.
“I particularly send that message to international banks operating in Australia who are in many cases providing that support, particularly to many larger landlords. We would expect those banks to be providing that same level of support and co-operation as we’re seeing from the Australian banks.”
Leasing principles
Following the PM’s address, the government has published the agreed code, which sets out “good faith leasing principles” for application to commercial tenancies, including retail, office and industrial.
Among the principles is a requirement for landlords to refrain from terminating leases due to non-payment of rent during the COVID-19 pandemic period.
Also included are expectations that tenants remain committed to the terms of their lease and that any reduction in statutory charges (e.g. land tax, council rates) or insurance is passed on to the tenant in the appropriate proportion applicable under the terms of the lease.
Where landlords and tenants cannot reach an agreement on leasing arrangements (as a direct result of the COVID-19 pandemic), the matter is expected to be referred and subjected to applicable state or territory retail/commercial leasing dispute resolution processes for binding mediation, including small business commissioners/champions/ombudsmen where applicable.
“Landlords and tenants must not use mediation processes to prolong or frustrate the facilitation of amicable resolution outcomes,” the code reads.
The entire code can be found here.
