With so many small businesses doing it tough during the pandemic, the government has put in place a range of measures and a mandatory code of conduct for commercial tenancies to support small and medium-sized businesses affected by coronavirus.

What is the code of conduct?

The mandatory code of conduct imposes a set of “good faith leasing principle” between tenants and landlords to apply to commercial tenancies (including retail, office and industrial) where the tenant is an eligible business for the purpose of the Commonwealth Government’s JobKeeper programme.

The code will apply to negotiating amendments to existing leasing arrangements – to aid the management of cashflow for small business tenants and landlords on a proportionate basis – as a result of the impact and commercial disruption caused by the economic impacts of industry and government responses to the declared Coronavirus (“COVID-19”) pandemic.

This Code applies to all tenancies that are suffering financial stress or hardship as a result of the COVID-19 pandemic as defined by their eligibility for the Commonwealth Government’s JobKeeper programme, with an annual turnover of up to $50 million.

The objective of the Code is to share the financial risk and cashflow impact during the COVID-19 between the landlord and tenant.

It is intended that landlords will agree tailored, bespoke and appropriate temporary arrangements for each small business tenant, taking into account their particular circumstances on a case-by-case basis.

All leases must be dealt with on a case-by-case basis, considering factors such as whether the SME tenant has suffered financial hardship due to the COVID-19 pandemic; whether the tenant’s lease has expired or is soon to expire; and whether the tenant is in administration or receivership.

Leasing principles

The code is also governed by a few principles. Most important are:

Landlords must not terminate leases due to non-payment of rent during the COVID-19 pandemic period (or reasonable subsequent recovery period).

Tenants must remain committed to the terms of their lease, subject to any amendments to their rental agreement negotiated under the code. It’s important to note that failure to abide to terms of a  lease will forfeit any protections provided to the tenant under the Code.

Deferrals or waivers

Landlords can offer rent relief in a number of ways including deferral of payment or reduced rent.

Landlords must offer tenants proportionate reductions in rent payable in the form of waivers and deferrals (as outlined under “definitions,” below) of up to 100% of the amount ordinarily payable, on a case-by-case basis, based on the reduction in the tenant’s trade during the According to the code, rental waivers must make up no less than 50 per cent of the total reduction in rent payable over the COVID-19 pandemic period Tenants may waive the requirement for a 50 per cent minimum waiver by agreement.

It’s also important to note that any rent deferred must be paid back.

Payment of rental deferrals by the tenant must be paid back over the balance of the lease term and for a period of no less than 24 months, whichever is the greater, unless otherwise agreed by the parties.

Find out more about rent reductions in NSW.  

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