Commercial leasing principles during COVID-19

The government is introducing a mandatory commercial leasing Code of Conduct (the Code). The Code imposes a set of 13 good faith leasing principles for application to commercial tenancies (retail, office and industrial) between landlords and tenants where the tenant is eligible for the Governments JobKeeper program.

For each tenant receiving the Governments JobKeeper payments, landlords should agree tailored, bespoke and appropriate temporary arrangements, taking into account their unique circumstances on a case-by-case basis.

The six main leasing principles are:

1. Landlords must not terminate leases due to non-payment of rent during the COVID-19 pandemic period (or reasonable subsequent recovery period).
2. Tenants must remain committed to the terms of their lease.
3. 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. The rent reductions are based on the decline in tenant’s trade during the COVID-19 pandemic period and a subsequent recovery period. For example, if the tenant’s sales drop 50%, the rent payable needs to fall at least 50%.
4. Rental waivers must constitute no less than 50% of the total rent payable under principle three above.
5. Payment of rental deferrals by the tenant are amortised over the balance of the lease term and a period of no less than 24 months (whichever is longer).
6. Landlords must not draw on a tenant’s security for non-payment of rent.

Where landlords and tenants cannot reach agreement on lease arrangements (as a result of the COVID-19 pandemic), the matter must be referred for binding mediation.