The recently announced mandatory Code of Conduct (Code) for commercial tenancy requires landlords and tenants to negotiate appropriate temporary leasing arrangements to achieve mutually satisfactory outcomes during the Coronavirus pandemic and a reasonable recovery period.
The Code is mandatory for small to medium enterprise tenants (ie. businesses with a turnover of less than $50 million who qualify for the JobKeeper program), and the government also suggests that the spirit of the Code should apply to all leasing arrangements for affected businesses. At this stage the Code has not been implemented in Queensland legislation.
A number of our SME clients have received correspondence from their landlords which ask them to provide a range of information to the landlord to assist in negotiating temporary arrangements. Unfortunately, in our view, much of the information being requested appears well beyond what is required under the principles set out in the Code.
Some of the information being requested by landlords includes:
- detailed financial turnover information (including requirements for certification/audit);
- outlines of government assistance available and taken up by tenants;
- details of business interruption insurance policies (and whether they have been paid);
- information about deferral or waivers of bank and other financial obligations.
The Code clearly states that “Landlords must offer tenants proportionate reductions in rent payable… of up to 100% of the amount ordinarily payable, on a case-by-case basis, based on the reduction in the tenant’s trade during the COVID-19 pandemic period and a subsequent reasonable recovery period.”
Financial information that assists in determining the reduction of trade is relevant. Much of the other information being requested may not be relevant to this determination.
Where a tenant is seeking rental waivers (of reduced rent) above the 50% minimum proposed by the Code, additional information may be relevant to assisting landlords consider such requests, however tenants should strongly consider the appropriateness of providing such information as a matter of course.
We are also aware of landlords asking tenants to commit to significantly increased terms and security obligations. Again, such requests do not appear to be within the spirit of the Code.
Temporary leasing arrangements during this period should be clearly and appropriately documented, and we are happy to assist landlords and tenants understand their obligations.
What should you do next?
The Code has the potential to require potentially complex commercial agreements to be put in place for the pandemic period and subsequently. If you are a SME tenant of a commercial lease impacted by the pandemic, or own commercial property leased to a SME tenant, you should seek appropriate legal advice about your rights and obligations. If you hold commercial property through a self managed superannuation fund there are additional considerations.
If you are a commercial tenant or landlord and would like assistance in this area please contact us today on 07 5606 7332, or via our webform to make an appointment – please let us know if you would like a telephone or videoconference appointment.
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