Government reveals new rules for commercial property tenancies

Australian prime minister Scott Morrison has announced a new range of rules governing commercial property leases.
Australian prime minister Scott Morrison has announced a new range of rules governing commercial property leases.

The Federal Government has confirmed its new ‘mandatory code’ of rental waivers and deferrals for commercial property tenants affected by the coronavirus crisis.

Under the new rules, landlords are banned from terminating leases or drawing on a tenant’s security, but tenants must honour their leases.

The code includes provisions for rental waivers or deferrals if landlords or tenants are eligible JobKeeper allowance and have a turnover of $50 million or less.

The code, which was confirmed at Tuesday’s National Cabinet meeting, says leases must be honoured but landlords will be required to reduce rent on their commercial properties in proportion to their tenant’s drop in trade.

The waivers are required to account for at least 50% of the rental amount, proportionate to the fall in turnover.

Rental deferrals, meanwhile, must be spread over the remainder of the leasing term, and for no less than 12 months.

Prime Minister Scott Morrison said landlords are now legally required to speak to their tenants about their lease, and refusing to would see them “forfeit their way out of the lease”.

“This preserves the lease, it preserves the relationship, it keeps the tenant in the property,” he said.

“The code brings together a set of good-faith leasing principles.”

“Landlords must not terminate the lease or draw on a tenant’s security. Likewise, tenants must honour the lease.”

Retailers have welcomed the finalised code of conduct for commercial tenancies.

The rent deferral rule means that if a tenant has less than 12 months remaining on their lease, they will still have a year or more to make the payments in full.

The new code will be regulated and legislated by each state and territory and will be overseen by a binding mediation process.

Mr Morrison said the expectation remained that landlords and tenants would work together to find a middle ground.

“It’s the same request we made of landlords and tenants about 10 days or so ago on this issue, and that is that they sit down and they work it out,” he said.

The Prime Minister called on banks, and particularly international lenders, to support landlords in the same way Australia’s banks had pledged their support.

Australian retail groups welcomed the new code of conduct, saying it would allow the industry to better deal with the impact of COVID-19.

“The model announced by the Prime Minister today is sensible and proportionate. It will ensure – to the greatest degree possible – that businesses who suffer a major downturn have the best chance of surviving,” National Retail Association CEO Dominique Lamb said.

“And that is good for both tenants and landlords. Just as we want to see businesses survive to keep employing their staff, property owners will also want to see the retail sector survive.”