Commercial Tenancy Code of Conduct
The National Cabinet has released details of a Mandatory Code of Conduct which was developed to impose regulations on how Landlords and Tenants should manage commercial tenancies during the Covid-19 crisis.
The Code of Conduct applies to businesses that:
- have a turnover less than $50million per year;
- hold an existing commercial tenancy (office, retail or industrial); and
- meet the eligibility criteria of the JobKeeper programme with regard to a reduction in revenue of at least 30% for a period of at least a month comparable with the same period last year.
Under the code Landlords must:
1. not terminate the Tenant’s lease during the Covid-19 pandemic period;
2. offer Tenants a rent reduction in the form of a waiver and/or a deferral of rent proportionate to the reduction of the Tenant’s trade during the Covid-19 pandemic period;
3. ensure rental waiver is no less than 50% of the total concessions to be made. For example, if the business has suffered a 70% reduction in revenue, then the Landlord would be required to waive at least 35% of the rental amount due pass on any reduction in statutory charges (e.g. land tax, council rates, etc.);
4. not charge the Tenant any fees, interest or other charges on the waived or deferred amounts;
5. not draw on the Tenant’s security for non-payment (whether cash bond, bank guarantee or personal guarantee) during the Covid-19 pandemic period;
6. impose any rent increases (except for retail leases based on turnover rent); and
7. not impose any penalties if the Tenant reduces its core opening hours or ceases to trade;
Additionally, the Landlord should, in good faith seek to:
- waive recovery of any other outgoings if the Tenant is not able to trade; and
- share any benefit it receives of deferrals of loan repayments, provided by its bank;
Under the code Tenants must continue to comply with all other terms of its lease (subject to the agreed rental arrangement).
If you are not able to reach a mutually suitable agreement, the matter will be referred to a Code-based mediation, which will be binding on the parties. This process should only be used if you can not genuinely reach a reasonable arrangement, not to prolong or frustrate the process.
Should you wish to discuss this matter in more detail contact your GMD Advisory team member.