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The National Cabinet’s SME Mandatory Code of Conduct for Commercial Tenancies

How Bell Legal Group can assist you

The National Cabinet’s SME Mandatory Code of Conduct for Commercial Tenancies (Code) was released on 7 April 2020 and was legislated by the Queensland Government on 23 April 2020. However, we await the Queensland Regulations to be published, which will clarify the new rules in detail.

Below, we summarise the important principles of the Code:

1.   The Code applies to small and medium enterprise tenants with annual turnover of less than $50m and who are eligible for the Federal Government JobKeeper payment. Tenants who are eligible for the JobKeeper payment are automatically considered to be in financial distress under the Code. This means that tenants who have had a reduction in revenue of at least 30% compared with the corresponding period in the previous year are covered by the Code;

2.  Landlords with tenants who have not paid rent will be prevented for the period of the pandemic (the speculation being a minimum of 6 months) from enforcing rights against tenants suffering hardship as a result of COVID-19.

This includes preventing landlords from:

  • terminating leases; or
  • charging fees, interest or other charges with respect to deferred rent; or
  • calling on bank guarantees, cash bonds or other forms of security.

Rent relief is mandated for eligible tenants, with the relief to be proportionate to the reduction in revenue by way of waivers and deferrals, and to be for the period of the pandemic.

Rent waivers must constitute no less than 50% of the reduction, however the tenant may waive this requirement.

Rent deferrals must be amortised over the balance of the lease term and for no less than 24 months which is the greater, unless agreed otherwise.

As an example, if a tenant suffers a 30% reduction in revenue, then the rent relief must be at least 30% of the rent, with 15% of the rent waived and 15% of the rent deferred and paid off over time.

Landlords and tenants are to work together to agree on rent relief on a case by case basis, negotiating in good faith. Each is to provide sufficient and accurate information to the other. If they cannot agree, there will be a binding mediation process to resolve disputes.

This leaves it open to landlords and tenants to agree on whatever other terms they negotiate, for example, an extension of the lease term.

3.  Any benefits obtained by landlords are to be passed onto tenants. These include relief from statutory charges such as land tax, rates, insurance, mortgage repayments and any other waivers or deferrals offered to the Landlord;

4.  There is a freeze on rent increases (other than for turnover rent);

5.  A tenant should be provided with an opportunity to extend its lease for an equivalent period of the rent waiver and/or deferral period.

6.  The Code applies to tenants impacted by COVID-19 only, so that tenants who are in default for non COVID-19 issues cannot rely on the Code.

How can Bell Legal help?

The effect of the Code may create several issues with leases that we can assist you with including:

  • Legal and commercial advice in relation to your options, whether you are a landlord or tenant, specific to your situation;
  • Advising landlord or tenant about a tenant that may be looking to exit its lease;
  • Negotiating terms of any agreement made between landlord and tenant, in relation to rent negotiations for waivers and deferrals, increasing lease terms, etc. We are dealing with these issues daily;
  • Documenting agreements made between landlords and tenants. This is particularly important with the deferred proportion of any rent, to ensure any repayment of deferred rent is binding;
  • Mediation and dispute resolution as required under the Code to resolve any disputes.

What if there are issues other than rent?

Outside of the Code, there may be other lease issues, such as breaches of the lease not associated with rent payment, such as repair obligations. The tenant’s business may have already been in trouble prior to the COVID-19 pandemic.

While we wait for the rules to be clarified in the Queensland Regulations, we hope that those rules won’t ignore the landlord’s legal right to protect its property and control unlawful behaviour, such as failing to maintain or repair premises.

We can advise you on alleged breaches of the lease, the consequences of those breaches and possible outcomes, from a landlord or tenants’ perspective.

Complimentary initial consultation

We are happy to offer you a complimentary initial telephone call to discuss the Code and your options in dealing with your landlord or tenant and your situation generally.

 

Please note that this article was prepared by Zoë Brereton of Bell Legal Group for general information only. It is not legal advice and should not be relied upon as such.

For legal advice about your situation call us on +617 5597 3366 or complete the Contact Us form below.