If a business has suffered due to the COVID-19 pandemic, it may be eligible to negotiate a discount or deferral of rent with a landlord.
This article outlines the eligibility threshold and process requirements under the National Cabinet Mandatory Code of Conduct - SME Commercial Leasing Principles during Covid-19 (Code) and explains why it is important to document the final agreed position between landlords and tenants. The Cleardocs Rent Relief (COVID-19) product can be used to document this arrangement and record the changes to the lease. This product is suitable for both landlords and tenants of commercial leases.
The landlord may or may not be an SMSF. For a description of SMSF compliance requirements and how this product can assist your please see our other article here.Michael McDonald and Alexandra Hodsman, Maddocks Lawyers
Legislation has been enacted in each State and Territory which implements the provisions of the Code in that State and Territory. While that legislation substantially mirrors the principles in the Code, there are differences in the legislation enacted by each State and Territory, and it is the specific provisions of the legislation in each State or Territory which will apply.
The Code applies to all commercial tenancies (including retail, office and industrial) where the tenant qualifies for, and is a participant in, the JobKeeper scheme and has a turnover of less than $50 million a year
The Code will apply to eligible tenants notwithstanding those tenants may have previously negotiated rent reductions or other variations to their lease terms with their landlords. If those existing arrangements provide for less rent relief or impose repayment obligations which are not consistent with the Code, tenants will be able to renegotiate those arrangements with landlords in accordance with the terms of the Code.
The following principles apply to negotiations for rent relief between landlord and tenants and the Code confirms that the principles should be applied as soon as practicable on a case by case basis:
It would be prudent from a tenant's perspective to formally document the arrangement or variation in order to take advantage of the protection offered by the Code and relevant State-based regulations. Furthermore, making the relief binding may prevent or mitigate any potential claim by the landlord for unpaid rent in the future as well as afford a tenant business greater certainty.
If the document is not legally binding, the landlord may be able to seek payment of any waived rent plus interest at penalty rates. The Cleardocs Rent Relief (COVID-19) product is legally binding and takes the form of a deed of variation to the existing lease and therefore meets this requirement.
It is also important to document the agreement from a landlord's perspective. This is because a tenant will be obliged to comply with its terms and a material failure by the tenant to abide by the substantive terms of the lease will not prohibit the landlord from taking enforcing its rights under that agreement.
The Cleardocs' Rent Relief (COVID-19) product provides a tenant and a landlord with the required documentation they need in order to continue to comply with the Regulations. The product can be accessed here.
The 'rent relief' offered by the product includes:
This product can be used to retrospectively document an existing arrangement between a tenant and landlord.
For more information, please contact Maddocks on (03) 9258 3555 and ask to speak to the Property team or Commercial team.
You can read earlier ClearLaw Articles on a range of topics, including the following topics which you may find relevant:
Paul is a Senior Associate in the Maddocks Commercial team with particular expertise in commercial agreements for the supply of goods and/or services, the Personal Property Securities Act 2009, the National Consumer Credit Protection Act 2009 and the National Credit Code and the Australian Consumer Law.
Paul's key areas of practice include:
Before joining Maddocks, Paul was employed for 13 years with the Victorian Department of Justice, principally as a Deputy Registrar in the Victorian Magistrate's Court, but also as a legislation, policy and project officer for the Department.
The legal information and commentary on this site is general only. Documents ordered through Cleardocs affect the user's legal rights and liabilities. To assess their suitability for the user, legal accounting and financial advice must be obtained.
For more information, contact Maddocks on (03) 9258 3555 and ask to speak to a member of their team.