COVID-19: Code of Practice

At the end of March 2020, the Prime Minister announced that the National Cabinet was working towards implementing measures to assist distressed landlords and tenants in the COVID-19 pandemic environment. Those measures were expected to include rent relief for tenants and possibly financial assistance for landlords who had mortgages to pay.

On 3 April 2020, the Prime Minister announced that the Government is working towards finalising an Industry Code of Practice to address these lease issues.

What will the Code of Practice say?

While we don’t have complete details of what the Code will say, we do know that it will be a mandatory Code for everyone it will apply to.

Who will it apply to?

The Code will apply to landlords and tenants where the tenant:

• has less than $50 million turnover per year;
• has experienced a downturn in turnover due to COVID-19; and
• participates in the Job Keeper program.

If those criteria are satisfied, we understand the Code will be a mandatory requirement, meaning that landlords and tenants must comply.

The PM also announced that the Code will have a “proportionality principle”.

What’s the “proportionality principle”?

This means that where the turnover of the business has gone down by, let’s say 40%, then the equivalent rent reduction will apply i.e. 40% rent reduction.

Another example may be that the business has completely stopped trading and had to close its doors. In that case there is no turnover and therefore the Code would require that no rent be payable.

What it also means is that if the business has not been affected and has no reduction in turnover, tenants cannot rely on the Code to seek a rent reduction.

What if the landlord refuses to reduce the rent?

The Code is expected to say that if the landlord and tenant can’t negotiate a suitable outcome for both parties, that the Code of Practice will dictate that both parties enter mediation.

When will the Code of Practice be ready?

The PM indicated that the Code should be ready early next week, and it would be enacted into law by the States and Territories soon thereafter.

While we have no further specifics on the Code of Practice, it is good news for both landlords and tenants that the Government is giving serious consideration to the issues arising from the COVID-19 situation.

We will update you with all the further details once the Code of Practice has been published.

 

Please note that this article has been prepared by Bell Legal Group, for information purposes only. It is not legal advice nor should it be relied upon as such.

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