COVID-19 - The Mandatory Code

Today the government has announced that a “Mandatory Code” will be introduced to assist businesses through the Covid-19 crisis.

The Code is conditional on businesses being eligible for the JobKeeper Program, ie have experienced more than 30% reduction in revenue.

The Code is to follow the “proportionality principle”. In other words, the revenue reduction of the tenant is to be reflected in the rental waiver of the landlord.

How this is organised inside the lease is between the tenant and the landlord.

Banks are not parties to the arrangements but are expected to support agreements reached by tenants and landlords working under the Mandatory Code.

Below are some questions that we are currently being asked

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1. As a tenant, what are my obligations to pay rent during the Covid-19 period?
As a tenant with a binding lease agreement you still have to pay rent. It is therefore best for you to be upfront with your landlord and have this conversation with them now.

You may still be operating from the premises but trading may be affected by Covid-19 already or expected to be. The premises may be shut down such that your business cannot trade. Your business may not yet be affected at all but you feel the future is uncertain and you are not sure what to do.

Whatever the circumstances it is important that you don’t rely on the current situation to release your obligations to adhere to your lease agreement.

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2. How will the Mandatory Tenancy Code help?

The Mandatory Tenancy Code is designed to guide and govern alterations to tenant / landlord agreements during the Covid-19 period, to keep matters reasonable and encourage parties to act in good faith.

The requirement for tenants and landlords to negotiate variations to lease agreements still stands. There may be a rent deferral, a rent free period, a lease extension, etc.

The introduction of a Code is anticipated to narrow down and protect the set of cases being those businesses who are genuinely struggling either now or in future as a result of Coronavirus.

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3. “My landlord said this” is it enough?

Short answer – no! Whatever agreement is reached between you, you must be sure that the terms of the arrangement are documented and made legally binding in the same way that your lease agreement is.

Please take special care with your business relationships, and have this prepared by our lawyers ideally.

We cannot stress enough that you must not rely on verbal statements, all arrangements must in writing and signed by both parties. (We don’t want to hear “but he or she is really lovely and I trust them”).

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4. As a landlord, if my tenants can’t pay the rent, how will I pay my mortgage?

If you are a landlord that has a mortgage on the property and tenants are unable to pay rent, the loss of rental income directly affects your ability to repay your mortgage. We recommend discussing your circumstances with our mortgage broker (or directly with your bank).

Many banks and lending institutions are offering mortgage payment deferrals and interest rate discounts. As mentioned above, lending institutions are expected to support lease agreement amendments made under the Mandatory Code.

Our insurance brokers are also able to assist by assessing whether your insurance can be relied on in the event of loss of rental income.

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5. Should we be considering past the Covid-19 period and into the future?

Of course! This situation will pass. Life will go on. And businesses will recover and thrive once again. With regard to leasing, it may be wise to be aware of the ability to negotiate renewal of your lease agreement if the rental market is impacted by the economic affects of Covid-19. (Sorry for this mention landlords)

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If you are a tenant or a landlord and require assistance with any matter regarding your lease, your loans, your insurances or your business in general, please get in touch with us promptly. We are here to help you and your family pass through the Covid-19 period, and beyond.