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Morrison’s mystery – deciphering the commercial leasing code

16.04.2020

Last week a code for commercial rent relief was announced by Prime Minister Scott Morrison. It lists 14 principles that the Federal Government believes should be applied when a landlord and tenant negotiate to mitigate rent costs for tenants whose business is impacted by the COVID-19 pandemic. Although well-intentioned, the code is creating chaos and confusion.

The futility of the code, from the perspective of certainty and enforcement, is conceded by the expectation that it is to be applied on a “case-by-case basis”, as emphasised in the introduction. It is unclear what the particular “cases” are, which principles of the code take precedence over others, and whether or not parties must apply the principles. The code states that “if negotiated arrangements under this code necessitate repayment, then this should occur over an extended period of time…”. This concedes that parties are free to negotiate, and presumably might not resolve anything at all. It also states that “any reference to waiver and deferral [of rent] may also be interpreted to include other forms of agreed variations to existing leases… or any other such commercial outcome of agreements reached between the parties”. This also underlines that it is up to the parties to try to agree to concessions, but not that they must. Nor is any particular outcome or form of redress mandated. The code unhelpfully adds that “[a]ny amount of reduction provided by a waiver may not be recouped by the Landlord over the term of the lease”. Effectively, therefore, if the parties agree to a rent waiver, then the rent must be waived. Which is not saying much.

The code is the kind of caring, feel-good media statement that the business community has become accustomed to hearing from Capital Hill, COVID-19 pandemic or not. However for the States and Territories, into whose collective lap the code has now been dropped, it will likely become a legislative nightmare. The lack of clear direction in the code has moved the difficult debate about how to strike a balance between the interests of landlords and tenants to the next level of government. Will they be able to make it work?

 

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