Mandatory Commercial Tenancy Code: Victorian implementation

Introduction

Just before the Easter Break on 7 April, the National Cabinet agreed for the Mandatory Commercial Tenancy Code (the Code) to be legislated in each state and territory jurisdiction. While no state or territory has specifically enacted all of the provisions of the Code, the Victorian Government has today announced that urgent legislation will be introduced into Parliament on Thursday 23 April 2020 to implement the Code. We are expecting that the principles in the Code will have legal effect shortly afterwards.

The Victorian Government has also announced a range of measures which expand on the principles in the Code, including that:

• Commercial tenants and landlords who struggle to strike a deal over rent reductions will be given access to a fast-tracked dispute resolution service, with the Victorian Small Business Commission mediating to ensure fair agreements are reached.
• If a landlord provides tenants impacted by coronavirus with rent relief, they will be eligible for a 25 per cent discount on their land tax, while any remaining land tax can be deferred until March 2021. A new Coronavirus Relief Deputy Commissioner will be established at the State Revenue Office to manage these land tax relief claims, which the Government expects will provide $420 million in land tax relief.
• Evictions will be banned for six months for the non-payment of rent for commercial tenancies involving small and medium-sized businesses.
• Rental increases will also be banned for commercial properties for the same period.

These measures apply to small and medium tenant businesses, with turnover of less than $50 million per annum, and which have suffered at least a 30 per cent reduction in turnover due to the COVID-19 pandemic. Land tax relief measures have also been announced in Queensland and New South Wales.

The measures in the Code will be backdated to 29 March 2020. We will provide a further update once the draft legislation is released by the Victorian Government.

The Code

A copy of the Code is attached to the statement issued by National Cabinet and is available here.

The Code applies to retail, office and industrial tenancies that are suffering financial stress or hardship as a result of the COVID-19 pandemic. The Code does not apply to residential tenancies.

Recognition for tenancies under the Code is defined by their eligibility for the recently introduced JobKeeper program, together with an annual turnover of up to $50 million.

The Code sets out a number of helpful and important guiding principles for consideration by landlords and tenants, including the requirement for landlords and tenants to act transparently and provide one another with sufficient and accurate information.

Most significantly, the Code requires a landlord to provide rental relief to a qualifying tenant by the same proportion as the loss of revenue experience by a tenant. At least half of the rent relief must to be given in the form of a rent waiver, while the other half can be deferral of rent spread over the life of the lease and not less than 24 months.

Also important under the Code, a landlord must not terminate a lease or draw on a tenant’s security due to failure to pay rent. Similarly, tenants must otherwise honour the terms of a lease.

The Code makes it clear that the above principles apply in spirit to all leasing arrangements for affected businesses, whether they qualify for the Code or not, having fair regard to the size and financial structure of those businesses. While the provisions will not be legally enforceable for tenancies outside the Code, the National Cabinet is encouraging all parties to leases to work together to ensure business viability at the end of the COVID-19 pandemic.

Next steps

Norton Rose Fulbright is providing advice to both landlords and tenants who are seeking guidance around their present rights and obligations, as well as how best to navigate through the Code and how to approach negotiations. We are also developing a suite of documents to record the types of arrangements that we expect will come into play over the next few months, including rent abatement deeds, variation documents and checklists.

If you require any assistance with negotiations, including being properly prepared with a tailored checklist for your business needs, please contact us. In the meantime, we will keep you updated on relevant matters, including the details of the legislation once released.