COVID-19 – Code of Conduct for commercial leases implemented in the ACT
13 May 2020
- Business Law
- Commercial Disputes
On 3 April 2019 the National Cabinet produced the Mandatory Code of Conduct – SME Commercial Leasing Principles during COVID-19. An overview of the Code of Conduct can be found here, in our previous article by lawyer Gene Schirripa.
The Code of Conduct has now been implemented in the ACT through the Leases (Commercial and Retail) COVID-19 Emergency Response Declaration 2020 (‘the Declaration’). Emily Shoemark and Kayla Scott explain below how the Code will apply in the ACT.
The application of the Declaration
The Declaration implements the Code of Conduct, which is attached to the Declaration at Schedule 1, for the period commencing on 1 April 2020 and ending on either the first day no COVID-19 emergency is in force or any later day notified by the Minister (referred to as the ‘prescribed period’).
The Declaration will apply to the following leases:
(a) a lease that was entered into before 7 April 2020 (a ‘prescribed lease’); and
(b) where the tenant under the lease:
- at any time during the prescribed period qualifies for the JobKeeper scheme; and
- had a turnover for the 2018/2019 financial year of less than $50 million (in relation to the business operated at the premises, unless part of a corporate group, then in relation to the whole group).
What does the Declaration require the parties to do?
If the Declaration applies to a lease, then the landlord of the lease must not give a termination notice to the tenant because they have breached the lease in one or more of the following ways, unless the landlord has engaged in good faith negotiations with the tenant:
- failed to pay rent; and/or
- failed to pay outgoings; and/or
- failed to operation the business in the hours required under the lease.
Good faith negotiations means that the negotiations have taken place having regard to the overarching principles and leasing principles set out in the Code of Conduct, acknowledging the financial hardship suffered by the tenant due to COVID-19.
However, a landlord can terminate the lease if the tenant agrees to the termination, or if the parties have entered into good faith negotiations and the tenant surrenders the lease.
Landlords are also prohibited from taking other forms of action under a prescribed lease against a tenant unless they have entered into good faith negotiations with the tenant, including:
- evicting a tenant
- exercising a right of entry to the premises, or taking possession of the premises
- claiming damages or forfeiture
- requiring the tenant to pay penalty interest or other charges under the lease in relation to unpaid rent
- recovery of whole or party of a security bond under a lease
- other actions that can be taken against a tenant under ACT law.
The Declaration makes it clear that the expectation is that landlords will not take any steps adverse to a tenant’s interest under a lease without first engaging in good faith negotiations in line with the Code of Conduct. This includes termination of leases that were notified during the period 1 April 2020 to 12 May 2020, prior to the commencement of the Declaration.
How can we help?
If you are a landlord or tenant under a commercial lease and have any queries regarding your rights and obligations during this time, please do not hesitate to contact our Business Services Team on 02 6285 8000 or by email.