The National Cabinet has issued its own principles regarding commercial leases.
The National Cabinet has agreed that a mandatory code of conduct will be developed and guided by principles. The Code will then be legislated and regulated in each State and Territory Governments.
The aim is to legislate a code of conduct that requires landlords to reduce rent proportional to tenants’ trading reduction through a combination of waivers of rent and deferrals of rent.
The code will apply to tenancies where the landlord or the tenant are eligible for the JobKeeper program and have a turnover of $50 million or less.
It is important to note that Leasing is a state matter and implementation of the National Principles or any ‘model rules’ will need to be through state legislation.
In the state of NSW the COVID-19 (Emergency Measures) Act 2020 (NSW) has already been enacted and was commenced on 25 March 2020. It is stated that the Act amends legislation across a range of fields and provides specific regulation making powers for the purposes of responding to the public health emergency caused by the COVID-19 pandemic.
Further, the Act amends the Retail Leases Act 1994 (NSW) and the Residential Tenancies Act 2019 (NSW) to allow regulations to be made under those Acts and any other ‘relevant Act’ providing for the following matters:
- prohibiting the recovery of possession of premises by a landlord from a tenant under the relevant Act in particular circumstances;
- prohibiting the termination of a lease by a landlord under the relevant Act in particular circumstances;
- regulating or preventing the exercise or enforcement of another right of a landlord under the relevant Act or an agreement relating to the premises or land in particular circumstances; and
- exempting a tenant from the operation of a provision of the relevant Act or any agreement relating to the leasing or licensing of premises or land.
Coronovirus Moratorium on Eviction
Principle 1 of the National Principles refers to “a short term, temporary moratorium on eviction for non-payment of rent to be applied across commercial tenancies impacted by severe rental distress due to coronavirus”.
Currently it is not known to what extent Principle 1 will be enacted by the states is unknown. However it is likely that the states make legislation to prohibit the recovery of possession of premises or the termination of a lease by a landlord during the moratorium period in the event the covenant to pay rent is breached.
There are a lot of grey areas and uncertainties in this respect. For example It is not clear whether other reliefs available to landlords will also be restricted, such as whether the landlord will be entitled to recover default interest, calling up bank guarantees or whether enforcement action against guarantors will be prohibited.
Further it is not clear from the structure of Principle 1 as to whether during the Moratorium period it is essential that rent continue to be paid. However there are not covenants included that waives the obligation to pay rent.
Mediation
The code is to foreshadow a binding mediation process run by the states and territories for the code.
It is important to note that National Principles are not law and it is essential that tenants be advised not to terminate a lease on the grounds of financial hardship.
Rather the parties to a tenancy should be encouraged to negotiate and mediate on a case by case basis using the National Principles as a guide with a view to come to an agreement in relation to the important issues of the dispute such as the amount of the rent.
The difficulty with the Moratorium of Eviction is that if landlord and tenants fail to agree on arrangements to either waiver, partially or absolutely, the rent or alternatively defer the rent, then it is fair to say that it is unlikely that the moratorium on eviction/termination be of utility in addressing the dispute and hardships existing between landlords and tenants. In effect, there will be no restriction for the landlords to terminate leases after moratorium if the rent remains in arrears.
For this reason, we suggest landlords and tenants negotiate and with a view to consider the case by case circumstances and either provide an extended period of time to repay all rental arrears or alternatively waive the amount of rent which has accrued during the Coronavirus Moratorium period.
The solicitors at Pavuk Legal are here to assist landlords and tenants with the process of mediation and any issues in relation to commercial and residential tenancies.
