Commercial rent reductions [Free Guide]

What you need to know - in a nutshell

As a result of the coronavirus, the government introduced a Mandatory Code of Conduct for landlords and tenants to negotiate a reduction and deferral of commercial and retail rents and to halt evictions.

To implement the Code, the States and Territories are enacting laws.

Key Features:

- Commercial tenants can not be evicted for a period of 6 months for unpaid rent.

- Rent can not be increased during the pandemic.

- Rent can be paid later (eg at the end of the lease) or reduced.

- Landlords can expect to receive rate and land tax reductions under separate legislation. These reductions must be passed on to the tenant on a proportionate basis.

- The parties must mediate any dispute before suing each other in court.

When does it start? It is starts as soon as the States and Territories pass the legislation. Victoria and NSW have done so already.

The Code will last as long as the JobKeeper program is running.

How does it work?

The Code directs the landlord and tenant to negotiate amendments to the lease together in good faith. To guide the parties, the government sets out a set of ground rules on how the negotiation is to take place, called "Overarching Principles". They are set out below.

The government also sets of a series of "Leasing Principles" for how the negotiation and implementation is to work. The parties are to apply the principles 'as soon as practicable' (which means as soon as it is practical to do it) and on a case by case basis. They are set out below too.

If the parties can't agree, either party can send the matter to mediation for a legally binding outcome. It can be sent to Small Business Commissioners/Champions/Ombudsmen (or women!) as applicable.

Who is eligible?

A business is eligible if they: a- Had turnover of under $50 million per year;

b- Experienced more than a 30% reduction in turn over as a result of coronavirus; and

c- Are eligible for JobKeeper.

The business needs to meet all three of the above criteria to be eligible.

The types of leases the act covers includes:

a- Retail leases

b- Residential tenancy agreements

c- Farm leases