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Progress made on code of conduct for commercial tenancies

The Property Council of Australia has noted today's direction from the National Cabinet for the development of an industry code of conduct for commercial tenancy.

On Friday, Prime Minister Scott Morrison announced further progress on the issue of commercial tenancies.

The National cabinet reached an agreement that a mandatory code of conduct guided by certain principles will be developed and subsequently legislated by State and Territory Governments.

The principles of the code for commercial landlords and tenants are as follows:

  • Where it can, rent should continue to be paid, and where there is financial distress as a result of COVID-19 (for example, the tenant is eligible for assistance through the JobKeeper program), tenants and landlords should negotiate a mutually agreed outcome
  • There will be a proportionality to rent reductions based on the decline in turnover to ensure that the burden is shared between landlords and tenants
  • There will be a prohibition on termination of leases for non-payment of rent (lockouts and eviction)
  • There will be a freeze on rent increases (except for turnover leases)
  • There will be a prohibition on penalties for tenants who stop trading or reduce opening hours
  • There will be a prohibition on landlords passing land tax to tenants (if not already legislated)
  • There will be a prohibition on landlords charging interest on unpaid rent
  • There will be a prohibition on landlords from making a claim to a bank guarantee or security deposit for non-payment of rent
  • Ensure that any legislative barriers or administrative hurdles to lease extensions are removed (so that a tenant and landlord could agree a rent waiver in return for a lease extension).

Ken Morrison, Chief Executive of the Property Council of Australia said, “We have been engaging closely with the Commonwealth, state and territory governments on these issues, and will continue to do so to provide the certainty that landlords, tenants and governments need to work our way through this crisis together.

“Commercial landlords build, manage and fund the property assets which support the Australian economy and are here for the long haul with their tenants.

“Commercial landlords around the country have already been supporting affected tenants without any fanfare as part and parcel of good commercial and business practice.

“They are committed to playing their part in getting businesses through to the other side of this crisis.

“We must also ensure the needs of tenants experiencing genuine financial hardship is balanced against the significant financial obligations that many landlords are also required to meet, including to non-bank or offshore lenders.

“Our industry will approach this task with goodwill and commensurate with its role as one of the pillars of the Australian economy,” Mr Morrison said.

“We welcome the recognition that governments must also be part of the solution with meaningful relief on land tax and other costs incurred by commercial property owners.”

For landlords and tenants that sign up to the code of conduct, States and Territories have agreed to look at providing the equivalent of at least a three-month land tax waiver and three-month land tax deferral on the application for eligible landowners, with jurisdictions to continue to monitor the situation.

Landlords must pass on the benefits of such moves to the tenants.

In cases where parties have signed to the code of conduct, the ability for tenants to terminate leases as mentioned in the National Cabinet Statement on 29 March 2020 will not apply.

Mediation will be provided as needed through existing State and Territory mechanisms.

The proposed code of conduct will again be discussed at the next meeting of the National Cabinet on Tuesday 7 April.

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