COVID-19 Code of Conduct for Commercial Tenancies – What are your new obligations or entitlements?

The State and Federal Governments have recently announced a suite of measures designed to provide relief to commercial landlords and tenants during the COVID-19 crisis. The Code is intended to be enacted with legislation in Queensland, and although that legislation is not yet available, Governments have issued clear messages about the need for tenants and landlords to work together.

Key concepts of the Code

The Code imposes a set of principles to be applied to provide rent relief for commercial tenants and guide negotiations with landlords. A full copy of the Code is available here [insert hyperlink: https://www.pm.gov.au/sites/default/files/files/national-cabinet-mandatory-code-ofconduct-sme-commercial-leasing-principles.pdf] but the key principles are as follows:

1. The Code is targeted at small to medium sized tenant businesses, with an annual turnover of less than $50 million and suffering financial stress as a result of the COVID-19 crisis. To be covered by the Code, the tenant business must be eligible for the Federal Government’s “JobKeeper” program, which generally requires a reduction in turnover of 30% when compared to turnover in a corresponding period a year earlier.
2. Tenants and Landlords are expected to negotiate openly, and in good faith, which will necessarily involve the exchange of confidential financial information to establish the impact on the tenant’s business.
3. Landlords are expected to provide rent relief in proportion to the reduction in the tenant’s trade – for example, if the tenant’s turnover is down 50%, then rent payable should also be reduced by 50%. The reduction can take the form of deferrals, waivers or other concessions – but at least 50% of the relief offered must be a waiver. Landlords cannot simply defer rent payments in full to later months, unless the tenant agrees. Any deferred rent must be amortised over 24 months or longer.
4. If the landlords receive other concessions or benefits (for example, reduced utility or taxation levies), those benefits should be shared with their tenants. If landlords can reduce outgoings charges (by reducing services), they should do so.
5. Landlords are unable to enforce a number of rights they typically have under commercial leases, and are prevented from: levying interest on late payments; calling on bonds or bank or personal guarantees; terminating leases for non-payment of rent; enforcing core-trading hour obligations; applying annual rent increases.
6. If landlords and tenants cannot reach agreement on appropriately modified leasing arrangements, they must attend mediation.
7. Tenants are obliged to abide by the un-altered provisions of their lease, and any arrangement with the landlord about rent relief. A material failure to abide the lease and agreement will result in the tenant forfeiting protection offered by the Code.

The Code is intended to apply during the COVID-19 crisis period, and for a reasonable recovery period thereafter. At this stage, it seems likely the measures will remain in place for most if not all of 2020. Until the detail of the Queensland legislation is announced, it is not yet clear whether there will be penalties or other consequences for landlords who refuse or make it difficult to comply with the Code. We expect that Courts will consider the application of the Code, in deciding any litigated disputes about eligible commercial leases.

Relief for Queensland landlords

The Queensland government has announced measures to provide some relief to landowners. Eligible landowners can apply (to the Office of State Revenue) for up to three months waiver and three months deferral of land tax charges. To be eligible:

1. Landowners with tenants must comply with the leasing Code and have provided at least one of its tenants with rent relief as a result of the COVID-19 crisis.
2. Landowners without tenants must have their property available for rent but have had their ability to secure a tenant affected by the pandemic, require relief to meet financial obligations and comply with the Code if a tenant is found.

Residential tenancies have not been entirely overlooked – a crisis payment of up to $500 per week for up to 4 weeks is available to Queenslanders who are homeless, at risk of becoming homeless and have exhausted other options like trying to negotiate with their landlord.

How we can help

If you think you may be affected by the new laws or you want to review your asset protection strategies, you can contact us by telephoning our office on (07) 3220 2929 or emailing us at contact@plastiraslawyers.com.