Let's hibernate and preserve: An insight into the mandatory code for commercial tenancies
This afternoon, National Cabinet has provided further detail on mandatory rent relief for commercial tenancies.
Below are some key takeaways from the PM's press conference about the proposed mandatory industry code for commercial tenancies.
The mandatory code will apply to landlords and tenants where either party is eligible for the JobKeeper program (<$50 million or less turnover).
Good faith leasing principles to apply
a. Landlords will be restricted from terminating the lease and calling on securities under the lease; and
b. Tenants must continue to comply with the lease terms.
Reductions on rent to be negotiated
As a guiding principle, rent reductions should be proportionate to the reduction in the tenant's business over the pandemic period.
a. Waivers of rent – waivers should account for at least 50% of the reduction of rent payable under the lease; and
b. Deferral of rent – deferrals must be amortised over the balance of the lease term and for no less than 24 months.
If landlords cannot reach agreement on rent relief with qualifying tenants, the parties will be obliged to submit to binding mediation, which will be governed by the applicable states and territories.
Further details on the mandatory code will come in due course once each State legislates the code.
For a variety of reasons it will be critical to accurately document any agreements that landlords and tenants reach – generally by way of a deed of variation of lease.
A copy of the National Cabinet Mandatory Code of Conduct - SME Commercial Leasing Principles During COVID-19 can be found here.
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