Code of conduct coming for commercial tenancies

A mandatory code of conduct for commercial leases is expected to be finalised by next week, as federal and state governments continue to work towards a mutually-beneficial solution for landlords and tenants affected by COVID-19.

Prime Minister Scott Morrison said the code had been discussed at national cabinet level, and urged industry to finalise a way forward as quickly as possible.

As well as a code of conduct, Mr Morrison said he expected state governments to come up with a range of exemptions, waivers and reductions to fees and rates to assist both landlords and tenants experiencing challenges because of COVID-19.

Premier Mark McGowan said he expected the national cabinet would come to a resolution on the new regulations next week, but said rents would need to reflect the commercial realities of the current environment.

“Many tenants, many businesses have had their incomes collapse,” he said. "Commercial rents should reflect that simple fact.

“Rents will have to come down, it is as simple as that.”

The development of a code of conduct comes in an environment of rising tension between landlords and tenants around how to best navigate through the challenge of plunging revenue due to the COVID-19 crisis.

The Australian Lottery and Newsagents Association, which represents more than 4,000 retailers across the country, said one of the biggest concerns was how tenants would continue to pay rent throughout the crisis. 

“Many are reporting that they will have limited capacity to continue to pay rent over the several months it may now take before any recovery in customer visitation occurs after social restrictions are lifted,” ALNA chief executive Ben Kearney said.

“When they have reached out to landlords and their representatives as almost all have, and as the prime minister has suggested they do, to have a conversation about sensible rent relief and abatement to meet the requirements of their business in surviving this crisis and that is no fault of their own, they are consistently and overwhelmingly met with delay and obfuscation.”

Property Council of Australia chief executive Ken Morrison said his organisation had been working closely with state and federal governments around the development of the code, but said there needed to be a balance between the concessions landlords were willing to give, and support from state and federal authorities.

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

“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.

“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.”

Mr Morrison said the code of conduct would be mandatory for tenants with turnover of less than $50 million that participate in the JobKeeper program, announced earlier this week.

He said the code would set guidelines for negotiations between landlords and tenants, but the federal government was reluctant to be prescriptive on what future arrangements would specifically be.

“What we want to do is have landlords and tenants in the room to ensure that they can work these issues out between them and have an arrangement which enables them to get through this period and to get to the other side,” Mr Morrison said.

“The banks will need to come to the party as well. 

“The banks are not parties to those arrangements, so that makes it legally a little more difficult but banks are already moving to provide all sorts of new facilities and arrangements to their customers and we would expect banks to be very supportive of the agreements reached by landlords and tenants who would be working under this mandatory code.”

Mr Morrison said protections under the code would be around evictions, penalties, guarantees, and of interest on unpaid rent.

“Also, the landlord would be protected in that the lease would not be able to be terminated on those grounds,” the prime minister said.

“There is give and take on this. Those tenants and landlords are being encouraged to sit around the table and get that done now. 

“The mandatory code would require it, and if you sit outside the mandatory code then you are leaving yourselves out in the cold.”

Mr Morrison said the national cabinet had placed a priority on commercial leases over residential because of the economic issues being experienced in the wake of the pandemic, and the rising levels of business closures across the country.

In addition, the prime minister said the code of conduct was focused largely on small and medium retail and commercial tenancies.

“The larger retailers and the big landlords, they will sort it out, they will get together and make arrangements because they both know how much they both need each other to make both of their businesses work," he said.

“But we want to make sure that smaller tenants have the protections they need to be able to sit down with their landlords. 

“Many landlords are doing the right thing, talking to their tenants, understanding that they both need each other and coming up with sensible arrangements to help them both get through. 

“But there is unreasonableness that is happening from landlords and both tenants alike. Landlords not taking the tenant’s calls and continuing to take the rent. 

“Tenants that are threatening to just throw the keys in their door and just walk away from their leases.

“That’s not the way we need to behave in this. 

“What we need to do is have a code of behaviour which will be mandatory under state and territory laws that will get people into a room and get them to sort it out, and if people don’t want to do that, then they won’t have those protections.”

Meanwhile, the Australian Competition and Consumer Commission today granted interim authorisation to shopping centre owners and managers to formulate rent relief measures for SME tenants.

The Shopping Centre Council of Australia and Scentre Group had previously applied to the ACCC to jointly develop a plan to help tenants which have a turnover of up to $50 million per annum.

Initiatives to be discussed include deferment or reduction of rents and other payments, the waiver of interest payments and the extension of leases.

“Support for small and medium businesses in this difficult time will help the economy start up again when the pandemic has subsided,” ACCC Chair Rod Sims said.

“We are allowing shopping centre owners to work together to come up with a plan to support their tenants experiencing financial difficulties. Nothing in the proposal stops individual owners from offering more generous concessions to their tenants."