Real Estate / TAG Property

Mandatory Code of Conduct - SME Commercial Leasing Principles During COVID-19

Introduction

Various measures implemented by the Australian Government in a bid to reduce the transmission of COVID-19 have immediately impacted the economy causing commercial disruption and financial hardship. To support those suffering financial stress and hardship as a result of the current COVID-19 pandemic, the National Cabinet has agreed a Mandatory Code of Conduct (Code) with respect to commercial tenancies that will come into effect in all states and territories on a date to be defined by each jurisdiction.

What is the Code?

The Code is the basis for new state and territory specific legislation aimed at managing cash flow for both landlords and tenants, and directing parties to a commercial lease to act in good faith when negotiating amendments to leasing arrangements which transpire due to the economic impacts of the COVID-19 pandemic.

Further information will be available once state and territory legislation has been passed, including details on the duration of the Code’s application and how it will operate in conjunction with existing leasing legislation. We will provide further updates as they come to hand.

Who does the Code apply to?

The Code applies to all 'SME tenants', defined by:

  1. eligibility to participate in the Commonwealth Government’s JobKeeper programme*; and
  2. an annual turnover of up to $50 million.

What are the current leasing statutory or common law provisions in relation to rent relief as a result of COVID-19?

There are no provisions of the Retail Shop Leases Act 1994 (Qld) (RSLA) which would require a landlord to provide rent relief to a tenant as a result of the COVID-19 pandemic, provided the landlord does not take any precipitous action to prevent the tenant from accessing the premises and it complies with lawful requirements regarding allowing continuing access to the premises.

Usually if a landlord restricts access to the premises of a retail tenant, compensation would be payable pursuant to s 43 of the RSLA. However, if buildings or premises are forced to close or restrict access by government direction, that compensation provision will not apply - this is reinforced by the provisions of s 43AB of the RSLA.

Generally, most leases will not contain 'force majeure' type clauses which could relieve the tenant of the requirement to comply with the lease and the effects of the COVID-19 pandemic are unlikely to give rise to common law frustration of leases - this is a very high bar to prove, and such a claim is unlikely to be successful given the temporary nature of any premises closure.

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