National Cabinet Mandatory Code of Conduct for Commercial Tenancies during Covid 19

On April 7, the Government announced new commercial rental waivers and deferrals for tenants that have been severely impacted by the coronavirus crisis.

The draft Code of Conduct is to impose a set of ‘good faith leasing principles’ and intended for landlords and tenants to share a proportionate financial risk and cashflow impact during this period of crisis. The code will apply to any small-medium sized tenancies where the tenant is eligible for the JobKeeper program and where they have a turnover of $50 million or less.

The main points are:

  • Tenant compliance – Tenants must continue to comply with their lease obligations otherwise the protections provided under the Code may not be available.
  • Rent reductions – Landlords must offer tenants proportionate reduction in rent in the form of waivers and deferrals based on the reduction in the tenant’s trade. Rental waivers must constitute at least 50% of the total rent reduction.
  • Landlords to pass on benefits – The Landlord must pass on any reduction it received in statutory charges (eg land tax, council rates).
  • No penalty – The Landlord must not charge fees or interest on rent or payments being deferred.
  • No draw on security – Landlords must not draw on a tenant’s security (bond, bank guarantee or personal guarantee).
  • Term extensions – Landlords should allow tenants to extend the lease for the period the subject of the rent deferral.
  • Rent freeze – Landlords to freeze rent increases (other than turnover rent in retail leases) for the duration of the COVID-19 pandemic period and a reasonable recovery period after it passes.
  • Pass on Benefit of Deferring Loan Repayments – A landlord should seek to share any benefit it receives due to deferral of loan payments, provided by a financial institution as part of the Australian Bankers Association’s COVID-19 response, or any other case-by-case deferral of loan repayments offered to other Landlords, with the tenant in a proportionate manner.

A full copy of the Code of Conduct is available at https://www.pm.gov.au/sites/default/files/files/national-cabinet-mandatory-code-ofconduct-sme-commercial-leasing-principles.pdf

We also note that the ATO has issued some brief guidance for trustees of Self Managed Superannuation Funds that own rental properties:

“  …for the 2019–20 and 2020–21 financial years is we will not take action where an SMSF gives a tenant – who is also a related party – a temporary rent reduction or waiver during this period.

Where there are temporary changes to the terms of the lease agreement in response to COVID-19 it is important that the parties to the agreement document the changes and the reasons for the change. This could be by way of a minute or a renewed lease agreement or other contemporaneous documentation.”