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RETAIL AND COMMERCIAL LEASING – WHAT YOU NEED TO KNOW (for now)

The long awaited mandatory commercial tenancy code was announced yesterday by the National Cabinet. The code applies the principles of good faith and proportionality and will be adjudicated through a mediation process.

So what does that mean for you (as a Landlord, Tenant or Agent).

To be eligible to seek relief under the Code, the party must:

  1. be a business that is in a position of financial distress;
  2. have a turnover of $50 million or less; and
  3. be eligible to receive support under the JobKeeper program i.e. have experienced at least a 30% decrease in revenue as a direct result of the pandemic.

Key Leasing Principles

The National Cabinet has identified the following key principles to negotiating and enacting temporary arrangements to be legislated under this mandatory code:

  1. Landlords must not terminate leases due to non-payment of rent during the COVID-19 pandemic period (or reasonable subsequent recovery period);
  1. Tenants must remain committed to the terms of their lease, subject to any amendments to their rental agreement negotiated under this Code. Material failure to abide by substantive terms of their lease will forfeit any protections provided to the tenant under this Code;
  1. Landlords must offer tenants proportionate reductions in rent payable in the form of waivers and deferrals (as outlined under “definitions,” below) of up to 100% of the amount ordinarily payable, on a case-by-case basis, based on the reduction in the tenant’s trade during the COVID-19 pandemic period and a subsequent reasonable recovery period;
  1. Rental waivers must constitute no less than 50% of the total reduction in rent payable under principle #3 above over the COVID-19 pandemic period and should constitute a greater proportion of the total reduction in rent payable in cases where failure to do so would compromise the tenant’s capacity to fulfil their ongoing obligations under the lease agreement. Regard must also be had to the Landlord’s financial ability to provide such additional waivers. Tenants may waive the requirement for a 50% minimum waiver by agreement;
  1. Payment of rental deferrals by the tenant must be amortised over the balance of the lease term and for a period of no less than 24 months, whichever is the greater, unless otherwise agreed by the parties;
  1. Any reduction in statutory charges (e.g. land tax, council rates) or insurance will be passed on to the tenant in the appropriate proportion applicable under the terms of the lease.
  1. A landlord should seek to share any benefit it receives due to deferral of loan payments, provided by a financial institution as part of the Australian Bankers Association’s COVID-19 response, or any other case-by-case deferral of loan repayments offered to other Landlords, with the tenant in a proportionate manner.
  1. Landlords should where appropriate seek to waive recovery of any other expense (or outgoing payable) by a tenant, under lease terms, during the period the tenant is not able to trade. Landlords reserve the right to reduce services as required in such circumstances;
  1. If negotiated arrangements under this Code necessitate repayment, this should occur over an extended period in order to avoid placing an undue financial burden on the tenant. No repayment should commence until the earlier of the COVID-19 pandemic ending (as defined by the Australian Government) or the existing lease expiring, and taking into account a reasonable subsequent recovery period;
  1. No fees, interest or other charges should be applied with respect to rent waived in principles #3 and #4 above and no fees, charges nor punitive interest may be charged on deferrals in principles #3, #4 and #5 above;
  1. Landlords must not draw on a tenant’s security for the non-payment of rent (be this a cash bond, bank guarantee or personal guarantee) during the period of the COVID-19 pandemic and/or a reasonable subsequent recovery period;
  1. The tenant should be provided with an opportunity to extend its lease for an equivalent period of the rent waiver and/or deferral period outlined in item #2 above. This is intended to provide the tenant additional time to trade, on existing lease terms, during the recovery period after the COVID-19 pandemic concludes;
  1. Landlords agree to a freeze on rent increases (except for retail leases based on turnover rent) for the duration of the COVID-19 pandemic and a reasonable subsequent recovery period, notwithstanding any arrangements between the landlord and the tenant;
  1. Landlords may not apply any prohibition on levy any penalties if tenants reduce opening hours or cease to trade due to the COVID-19 pandemic.

We have attached for your reference a copy of the National Cabinet Mandatory Coding announcement which provides some further explanation of key terms used.

So what does this mean

Well, currently there is no change to the existing laws in Queensland. Until such a time as the Queensland Government passes the mandatory code, it is business as usual.

We do note however that the National Cabinet announcement has proposed that the Code once in force will apply retrospectively from 3 April 2020.

The Code will remain in effect for the period during which the Commonwealth JobKeeper program remains operational, which at this stage has been advised to last for six months.

How can we assist you

A.L.F Lawyers is dedicated to providing you with quality and professional advice and assistance during this difficult time. As we can appreciate and adopting the principles utilised by the Nation Cabinet in defining the obligations for this code, A.L.F Lawyers has prepared a “COVID-19 Amendment to Lease Package” which is offered to our clients at a reduced fixed rate.

What is the “COVID-19 AMENDMENT TO LEASE PACKAGE”

We understand that one of your key challenges will be time and expediency, to assist you in facilitating negotiations in line with the proposed Lease Code requirements we have prepared a standard form document detailing all the key variations which may be affected by the Code i.e. rental abatement, portion of abatement waived vs portion of abatement deferred.

Once the parties have agreed to the terms and completed the standard form document and our office is instructed to act for a party, we will have the Amendment to Lease drafted and issued within 2 business days and at a fixed rate.

Please also contact us to discuss our fixed rate fees where the parties negotiate to surrender the existing lease and enter into a new lease.

What now & further considerations

Once the Queensland Government enacts the relevant legislation imposing the mandatory leasing requirements, we will provide you with a further update through a webinar giving you the opportunity to ask questions.

As a further assistance to struggling businesses the Queensland Government has announced the COVID-19 Jobs Support Loan to assist Queensland businesses and non-profit organisations impacted by the pandemic.

Contact us if you would like to obtain a copy of the standard form document or if you require any further assistance.

We are committed to work for you because we care about our clients and their needs. Contact us today for your free quote and we will get back to you within 24 hours.

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