We’ve been taking a lot of enquiries recently regarding the new Covid-19 Leasing Code of Conduct (“the Code”) announced by the Australian Government. We expect the Code to be legislated by the Queensland Government, with the new rules to be law from early April 2020.
The Code can be difficult to follow. Here is a summary of the key points:
- The Code only relates to tenants with a turnover of $50 million or less who are suffering financial stress or hardship as a result of the Covid-19 pandemic.
- If a tenant is eligible for the Australian Government Jobkeeper programme, they will be automatically eligible for relief under the Code. The tenant may still qualify for relief if they are not eligible for the Jobkeeper programme, however they must show that they are unable to meet their financial commitments due to Covid-19.
- The starting point is for the tenant to provide the landlord with evidence of their downturn in revenue resulting from Covid-19. That percentage of downturn is then carried across to be applied as the percentage of rent relief. The rent relief amount is split into two – with one half of the relief being applied as deferred rent and the other half being rent free (waived). This is best explained with an example:
The tenant can show a downturn of 60% in their revenue. The rent is usually $10,000 per month (exclude GST for the purposes of calculations). The way the relief should be applied is as follows:
$4,000 (ie 40%) of rent is still payable by the tenant
$3,000 (ie 30%) of rent is deferred – to be repaid at a later date
$3,000 (ie 30%) of rent is rent free – this is waived and not to be repaid
- Any deferred rent must be repaid by the tenant as amortised payments over the balance of the lease term and for a period of no less than 24 months (whichever is greater) unless otherwise agreed between the parties. Repayments should not commence until the Covid-19 pandemic ends (as defined by the Government), or the lease ends (whichever happens first).
- If the tenant is not able to trade, the landlord should also waive outgoings. However, our view is that if the tenant is still trading, it is still liable for outgoings.
- During the Covid-19 pandemic, the landlord must not draw upon any cash bond, bank guarantee or personal guarantee due to the tenant’s non-payment of rent. Further, the landlord must not terminate the lease due to non-payment of rent during the Covid-19 pandemic.
- Landlord’s are not permitted to increase rent (even if allowed for in the lease) during the Covid-19 pandemic.
In many cases, the Code will not suit the needs of landlord and/or tenant. There is nothing to stop landlords and tenants negotiating their own arrangements outside of the Code. However, this will require both parties to agree to the terms. If the parties cannot agree, then the Code will be the default position.
It has been our experience that many landlords and tenants have been able to successfully negotiate terms that suit both parties (in most cases without resort to the Code). It is strongly recommended that any such arrangements (whether under the Code or outside of it) are recorded by way of a formal agreement prepared by a solicitor.
Please contact us if you require assistance with understanding your obligations, or if you require an agreement to be formalised in writing.