Commercial and Retail Tenancies
Commercial and retail tenancies have been a hot topic for the past two months. When the Federal Government issued lockdown procedures in March 2020, many businesses were forced to close their store fronts or have seen a drastic downturn in foot traffic. Since this date both landlords and tenants have been eagerly awaiting legislative changes to provide clarity on how to manage their leases.
In April 2020, the National Cabinet Mandatory Code of Conduct for commercial leases was released by the Federal Government. The Code is designed to impose a set of “good faith” leasing principles between landlords and tenants.
The Code applies to commercial and retail tenants who have an annual turnover of less than $50 million and are eligible for the Government’s JobKeeper program. The Code will remain in force for the duration of the JobKeeper program.
For the Code to be effective, it must first be implemented in legislation or regulation by each State or Territory.
This has already occurred in New South Wales, Western Australia, Victoria and Tasmania and is expected to soon come into force in Queensland, South Australia and the Northern Territory although we note that some of these states have already taken steps to implement parts of the Code. On top of the leasing principles set out in the Code, if a tenant in South Australia or Western Australia is suffering significant hardship due to the crisis, a tenant will be allowed to terminate their lease early.
The Code includes 14 new “Leasing Principles” that restrict landlords’ powers and set out new requirements against which landlords and tenants must renegotiate their leases. The 14 Leasing principles are as follows:
In addition to the above Leasing Principles, the Code also requires landlords and tenants to negotiate transparently and in good faith, and to consider the unique difficulties posed by the COVID-19 virus. If landlords and tenants can’t reach an agreement on any dispute, the Code allows either party to refer the dispute to their applicable State or Territory retail/commercial leasing dispute resolution regulatory body for binding mediation.
As the implementation of the Code in each State is only recent, there are no clear guidelines on what sort of information parties must provide to each other to comply with the above principles. The Code asks that the parties provide information generated from an accounting system or information provided to or received from a financial institution, if that information may help show the financial impact on their business caused by COVID-19.
We have already seen examples of landlords asking tenants to provide detailed business plans, sales projections, aged receivables, ATO balances, income tax returns, BAS statements, franchise agreements, profit and loss and bank account statements. In some cases the requests have been well in excess of the information needed for negotiations.
Overall, before landlords or tenants start negotiating, we recommend they familiarise themselves with the Code as applied in their State and gather all information necessary to assist with the negotiations. Finally, any agreed outcomes need to be clearly documented by the parties.
If you need any assistance with negotiating an existing or new lease please contact us at email@example.com