Coronavirus and your commercial lease
To protect SMEs in their commercial lease arrangements, the federal government has stepped in and created a National Cabinet Mandatory Code of Conduct “SME Commercial Leasing Principles During COVID-19”. The code will provide SMEs with payment relief in respect of their commercial leases during the COVID-19 pandemic. The principles in this code will be applied by each State government in regulations that should be in place shortly.
Who does it apply to?
All types of commercial leases
For businesses with an annual turnover of less than >$50m
For business that are suffering financial stress as defined by the JobKeeper program (usually meaning a 30% reduction in turnover)
The code commences on 3 April 2020 and will operate for the same length of time as the JobKeeper program.
Victoria - COVID-19 Omnibus (Emergency Measures) Act 2020 (VIC)
For commercial lease arrangements in Victoria, we are waiting for the final State regulations which we will receive any day. But at the moment, the key details are as follows:
You have to be participating in the JobKeeper scheme (not just eligible).
The Victorian legislation will be applied retrospectively. It will commence on 29 March 2020, in order to protect tenants who are in arrears, and continue until 29 September 2020.
The new regulations will apply to commercial leases and to licenses to occupy land for business purposes. This will allow a franchisees outlet licence to be protected by the code as well as co-working spaces.
A ‘group of companies’ is defined broadly for the $50m cap.
We don’t yet have specifics on the effect of the regulations on commercial leases, but the regulations will reflect the 14 principles from the code. In summary they are:
Landlords cannot terminate leases due to non-payment of rent.
Landlords must offer the tenant a proportionate reduction in rent based on the reduction in the tenant’s trade during COVID-19.
Any reduction in statutory charges or insurance must be passed on to the tenant. A landlord should also share any benefit it receives due to deferral of loan payments.
Landlords cannot draw on a tenant’s security for the non-payment of rent or impose any fees, interests or other charges.
The tenant should be provided with an opportunity to extend its lease for an equivalent period.
There is a freeze on rent increases.
In the event of a dispute, there is a requirement for the parties to mediate before going to litigation.
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