Landlords must not terminate leases due to non-payment of rent during the pandemic, under “good faith” leasing principles announced Tuesday
Prime Minister Scott Morrison announced that states and territories would implement a mandatory Code of Conduct regarding leasing – and that the Commonwealth would waive rents for its small and medium enterprise and not-for-profit tenants.
“The purpose of the Code is to impose a set of good faith leasing principles for application to commercial tenancies (including retail, office and industrial) between owners/operators/other landlords and tenants, in circumstances where the tenant is a small-medium sized business (annual turnover of up to $50 million) and is an eligible business for the purpose of the Commonwealth Government’s JobKeeper program,” the PM said in a media statement.
“National Cabinet agreed that there would be a proportionality to rent reductions based on the tenant’s decline in turnover to ensure that the burden is shared between landlords and tenants.
“The Code provides a proportionate and measured burden share between the two parties while still allowing tenants and landlords to agree to tailored, bespoke and appropriate temporary arrangements that take account of their particular circumstances.
“National Cabinet again noted that it expects Australian and foreign banks along with other financial institutions operating in Australia, to support landlords and tenants with appropriate flexibility as they work to implement the mandatory Code.
“The Commonwealth Government is also acting as a model landlord by waiving rents for all its small and medium enterprises and not-for-profit tenants within its owned and leased property across Australia.
“The Rent Relief Policy will include a mutual obligation requirement on the small and medium sized enterprises and not-for-profit tenants to continue to engage their employees through the JobKeeper initiative where eligible, and if applicable, provide rent relief to their subtenants.”
The Code states that its objective is to share the financial risk and cash flow impact of COVID-19, while seeking to “appropriately” balance the interests of both tenants and landlords.
Several principles are set to be applied as soon as practicable on a case-by-case basis, including that landlords must not terminate leases due to non-payment of rent during the pandemic period, or a reasonable subsequent recovery period.
Tenants must remain committed to the terms of their lease, while 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 and recovery.
The Code also cites as a principle that landlords agree to a freeze on rent increases (except for retail leases based on turnover rent) for the duration of the COVID-19 pandemic and a reasonable subsequent recovery period, notwithstanding any arrangements between the landlord and the tenant.
The full Code can be accessed here.
The Pharmacy Guild, alongside the The Australian Retailers Association (ARA), National Retail Association (NRA), and Shopping Centre Council of Australia (SCCA) initially proposed a national Code of Conduct for retail leasing as part of a set of mutually Agreed Leasing Principles released by the groups on 31 March 2020.
The parties said that a key purpose of the Code was national consistency as well as an efficient and timely application given the rapidity of the economic impact of COVID-19 and measures to contain the virus’ spread.
The National President of the Pharmacy Guild of Australia, George Tambassis, said the Code would provide clarity for commercial tenants, including community pharmacies, where they need to negotiate arrangements with landlords during the COVID-19 downturn.
“Fundamentally, as the Prime Minister said, it is about sitting down and working out an agreed course so that we can all get through this together, and with normal business and employment able to resume,” Mr Tambassis said.
NRA CEO Dominique Lamb said, “The model announced by the Prime Minister today is sensible and proportionate. It will ensure – to the greatest degree possible – that businesses who suffer a major downturn have the best chance of surviving.
“And that is good for both tenants and landlords. Just as we want to see businesses survive to keep employing their staff, property owners will also want to see the retail sector survive,” Ms Lamb said.