The National Cabinet Mandatory Code of Conduct (‘the Code’) to ACT commercial and retail tenancies, established in April last year to navigate the financial impacts of the COVID-19 pandemic, ended on 31 January 2021.
The 14 leasing principles under the Code included a series of good faith negotiation tools to equip both landlords and tenants in negotiating rent relief. So now that this Code has come to an end, what does this mean for you?
Prior to 1 February 2021, if an impacted tenant failed to pay rent or outgoings, or operate its business during the hours required under the lease, the landlord was not able to take any of the following actions unless the landlord first engaged in good faith negotiations in accordance with the Code:
- give a termination notice
- evict the tenant or take possession of the premises
- exercise a right of re-entry
- seize goods on the premises
- require payment of penalty interest on, or a fee or charge related to, unpaid rent otherwise payable by the tenant
- recover the whole or part of a security bond under the lease
- performance of obligations by the tenant or any other person guaranteeing the tenant’s obligations under the lease or
- any other remedy otherwise available against the tenant under a Territory law.
From 1 February 2021 landlords will no longer be restricted from taking the above actions for breaches occurring on or after 1 February 2021. However, landlords are still restricted from taking action against a tenant for any breaches of the lease prior to that date.
From 1 February 2021, a tenant no longer has the added protection of the Code in respect of future breaches. Landlords can rely on their rights under the lease and the law, to take action against a tenant who breaches the lease on or after 1 February 2021.
If the tenant breached the lease prior to 1 February 2021, the landlord may only take action against the tenant for the breach if it has first engaged in good faith negotiations in accordance with the Code.
What happens if tenants can’t afford to pay their rent after 1 February 2021?
Despite the protections of the Code ending on 31 January 2021, many tenants are continuing to feel the financial pressures brought about by the pandemic. It would be unsurprising that some commercial and retail tenants may find it difficult to pay rent in full from 1 February 2021.
From 1 February 2021, landlords may take action against a tenant who defaults under the lease, in accordance with the lease and the law. A commercial or retail lease ordinarily gives the landlord the right to give a defaulting tenant a breach notice (with an opportunity to remedy the breach by a specified date), or to terminate the lease. A landlord may be able to charge interest on unpaid rent, call on the security bond provided by the tenant for the lease, or demand payment from an individual or company who personally guaranteed the obligations of the tenant under the lease. Landlords will no longer be fettered by the Code in terms of the range of actions they can take against a defaulting tenant.
Some tenants may become insolvent as a result of the ending of the rent relief period, or the demands of the landlord to remedy any defaults under the lease. In response to the pandemic, the Australian Government introduced temporary legislative changes for insolvent or bankrupt parties who were unable to pay their creditors. These temporary debt protection and relief measures ended on 1 January 2021.
Is rent deferred or is it waived?
During the pandemic, landlords and tenants may have made arrangements for proportionate reductions in rent by way of waivers and deferrals.
Rent which was waived in full is not repayable, even after the pandemic ends. Rent which was deferred (in whole or in part) may be recovered by the landlord after a reasonable recovery period.
Ideally the terms of the rent relief arrangements negotiated by the landlord and tenant, including the date on which the deferred rent becomes repayable, would have been clearly documented by the parties. If not, the landlord should be cautious about taking any action against a tenant for failing to immediately commence repayment of deferred rent. Landlords and tenants may need to revisit their negotiations regarding deferred rent, in order to agree upon a suitable timeframe within which the deferred rent should be repaid.
If you require any assistance in negotiating a commercial or retail lease, or understanding your rights and obligations under your existing tenancy arrangements, please contact Christine Murray and her team at Meyer Vandenberg on 6279 4402.