Commercial Lease Negotiations

Commercial Lease Negotiations – COVID-19 Support
8
Apr

Another update for everyone based on the Prime Minister’s announcement yesterday afternoon. We are here to assist with any of the Stimulus matters – just contact us.

The new mandatory code of conduct released after the National Cabinet meeting has been established with the purpose of imposing a set of good faith principles on landlords and tenants in relation to the impact of COVID-19. Previously the Government had no way of assisting business to deal with the cost of their leased premises during the pandemic. An overview of the detail:

To be eligible you will be an SME with less than $50m turnover and be participating in the JobKeeper program (which at this time is still being developed of course).

The new code outlines:

  • Landlords and tenants will engage in good faith negotiations to agree arrangements for managing the financial impact of the COVID-19 pandemic.
  • Parties will provide appropriate assistance to each other in the negotiation of arrangements related to the tenancy with other stakeholders, such as Governments and banks.
  • Proportionality Principle should apply – that is, any reduction in rent should proportionally reflect the reduction in turnover.
  • Prohibition on termination of leases for non-payment of rent.
  • Tenants to abide by the terms of their lease, subject to any amendments.
  • Landlords to offer proportionate reductions in rent based on financial disruption incurred by the tenant.
  • Rent waivers must account for at least 50 percent of the rent reduction.
  • Rent deferrals would be repayable over the remaining term of the lease, or a minimum 24-month period, whichever is greater.
  • Landlords to share the benefit it receives due to loan payment deferrals or the like.
  • Landlords should waive recovery of outgoing type expenses (such as rates).
  • Prohibition on landlords charging interest on unpaid rent or from making a claim on a bank guarantee or a security deposit for non-payment of rent.
  • Tenants should be availed the opportunity to extend lease terms to meet rent waiver or deferral periods.
  • Landlords should freeze any rent increases.
  • The measures will apply, where appropriate for the duration of the pandemic period.
  • Mediation will be available via the State Government oversight mechanism.

There is an obvious cost to landlords in this – the Government proposes further reductions in costs of owning the property, but details are yet to be released.

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