As promised, here is the latest update on the evolving situation with Landlord and Tenants on Commercial, Industrial and Retail Premises. The Prime Minister has announced this afternoon that the National Cabinet has met and has made some decisions around this space, which we have all been waiting for.
Most importantly, it has been announced that the National Cabinet have introduced a Mandatory Code which will be legislated in each State. Landlords and Tenants are required to comply with the terms of this Mandatory Code.
The code will require Landlords and Tenants to negotiate in good faith. Landlords aren’t going to be able to terminate a Lease and Tenants are going to have to comply with the remaining terms of the lease.
The Code will apply where the business of either the Landlord or the Tenant has suffered as a result of the Covid-19 Pandemic, so that either business is an eligible business under the governments recently announced Commonwealth JobKeeper program and has a turnover of less than $50 Million.
The parties are then going to have to reach an agreement whereby the proportionate amount of reduction in a Lease rental will apply in cases where the Job Keeper Program already applies to that business. The reference to the Proportionate amount is the amount of reduced turnover of the Business suffered as a result of the Covid-19 Pandemic.
In that circumstance and if those provisions apply, then the rental will be required to be reduced proportionate to the reduction in the business (for example if a business’s turnover has reduced by 50%, that business will see a 50% reduction in the rental for the period of the Pandemic). This rent reduction can be made up of “rental waiver” and “rent deferral”.
In respect of those proportions the “rent free” proportion must make up at least 50% of the rental relief. The “rent deferral” component can be deferred and paid back over a period of not less than 12 months, but usually will be paid back over the remaining term of the lease (for example if the remaining term of the lease is longer than 12 months it would be paid back over the entire term, however if the lease term is shorter than 12 months that tenant will still have 12 months to repay those rent monies).
Rental increases under a lease will be frozen and penalties and interest charges will not be able to be charged, nor can guarantees or bonds be called upon.
These are important changes as the landscape is constantly changing and as things arise further, I will continue to keep you updated. Please remember though any agreements reached between Landlords and Tenants must be documented as the potential disputes in the future will be greater than the problem itself.