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COVID-19: impact on Landlords and Tenants

COVID-19: impact on Landlords and Tenants

By

May 1, 2020

Covid 19 landlords and tenants

There is a great deal of uncertainty concerning small and medium enterprises (SME) and how their leasing arrangements may be impacted throughout the pandemic.

The Federal Government earlier introduced the Mandatory Code of Conduct (for SME commercial leases) which outlined principles for the State Governments (and Territories) to build their own legislation and regulations around.

Haitch Legal are here to answer your most important questions on the Mandatory Code of Conduct and new State Government laws.

What is the Mandatory Code of Conduct?

On April 7, 2020, the Australian Federal Government announced the COVID-19 Mandatory Code of Conduct for SME Commercial Leases (the “Code”).

The Code was introduced as a means of easing the pandemic’s impact on Australian small and medium commercial leasing, where Landlords and Tenants would share the burden in a fair and equitable manner.

The Code would stay in effect for the same duration as the recently introduced Commonwealth JobKeeper program.

Who does the Code apply to - is my business impacted?

The Code applies to eligible tenants who have been impacted by COVID-19 and satisfy both of the following criteria:

  1. are a small or medium enterprise in Australia with an annual turnover of less than $50 million; and
  2. are eligible for and currently undertaking the Federal Government’s JobKeeper program.

If you are unsure of or would like to enquire on your eligibility under the Code, contact us today.

The Victorian State Government has enacted legislation with relevant regulations which mirror the Mandatory Code of Conduct. The regulations have retrospective effect from 29 March 2020 and expire on 29 September 2020.

The regulations seek to protect tenants from unfair treatment during the relevant period and provides guidelines pertaining to negotiations between landlords and tenants. 

Tenants must make a formal request for rent relief (in writing). Any negotiation should be conducted in “good faith” with the goal to achieve a fair and equitable outcome for both parties. 

Some specific items to be considered include the following:

  • Landlords must not terminate the lease due to non-payment of rent during the relevant period;
  • Tenants must remain committed to the terms of their lease;
  • Landlords must offer tenants proportionate reductions in rent payable in the form of waiver and deferrals of up to 100% of the amount ordinarily payable;
  • 50% of the rent relief must be in the form of a waiver of rent;
  • Landlords will have 14 days to respond (with a formal offer) to the tenant’s request for rent relief;
  • Any reductions in outgoings (e.g. land tax, insurance or council rates) should be passed onto the tenant in the appropriate proportion applicable under the terms of the lease;
  • The parties negotiate in “good faith” when reaching an agreement on rental relief;
  • Landlords should consider all circumstances that are relevant to the tenant (and themselves). Considering items such as the financial capacity of the parties or the consequences of not providing rent relief;
  • Landlords must not draw on the tenant’s security bond for the non payment of rent;
  • If the parties cannot come to a resolution a dispute application can be lodged with the Small Business Commissioner with the intention to mediate the dispute.

Legal advice for commercial leasing arrangements in Victoria

Whether you are a landlord or tenant, there are numerous regulations and principles that apply to you. We have an extensive history of assisting both landlords and tenants on a range of complex matters.

When it comes to commercial leasing arrangements in Victoria, your legal representative must be able to read between the lines and pay attention to the fine details. Doing so means that you know where you stand and what to do next.

Seek professional advice from our expert team of lawyers to keep your business safeguarded through COVID-19. We are here to guide you through these uncertain times and provide accurate legal advice.

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