News | 07/08/2020

COVID-19 and Commercial Tenancies

With the coming of the corona virus known as COVID-19, the first half of 2020 has seen the emergence of many difficult situations for both commercial and residential landlords and tenants alike, with financial strain common to both.

Actions of the National Cabinet

After an assessment of the national circumstances, the National Cabinet produced a mandatory “Code of Conduct – SME Commercial Leasing Principles During COVID-19” (Code). Its stated purpose is to impose a set of good faith leasing principles for application to commercial tenancies (including retail, office and industrial) between owners/operators/other landlords and tenants, where the tenant was an eligible business for the purpose of the Commonwealth Government’s JobKeeper programme. Essentially, the Code was developed to assist those businesses that had suffered at least a 30% loss of income during the COVID-19 pandemic period as compared to March 2019, with that assistance to be available for the six-month emergency period, being 1 March 20 – 30 September 2020.

By doing so, it would enable both a consistent national approach and timely, efficient application given the rapid and severe commercial impact of official responses to the COVID-19 pandemic.

Broadly, landlords and tenants are expected to work together to support business continuity and facilitate the resumption of normal trading activities once the COVID-19 emergency period allows. The Code outlines how parties should be communicating and assisting each other during their respective times of hardship.  This is to be achieved by landlords and tenants coming together to discuss relevant issues, negotiate appropriate temporary leasing arrangements, and work towards achieving mutually satisfactory outcomes while taking into account particular circumstances on a case-by-case basis.

The Code is given effect through relevant state and territory legislation or regulation as appropriate. The Code was not intended to supersede such legislation, but aimed to complement it during the COVID-19 crisis period.

A copy of the Code can be found here:

hhttps://www.pm.gov.au/sites/default/files/files/national-cabinet-mandatory-code-ofconduct-sme-commercial-leasing-principles.pdf

Actions of the Northern Territory Government

Following the introduction of the Code, the NT Government amended the Business Tenancies (Fair Dealings) Act 2003 (“Act”) to assist tenants remain in their properties for the duration of this crisis. Specifically, on 28 April 2020, Parliament passed the Tenancies Legislation Amendment Act 2020, providing the framework for the Territory’s response to tenancy issues arising as a result of the COVID-19 emergency.

The amendments allow the NT Government to pass laws by way of ‘modification notices’ published in the Government Gazette, which is the official notice given by Parliament. As a result, the responsible Minister can now more easily change the Act (and also the Residential Tenancies Act 1999) utilizing these modification notices. 

In amending the Act, the NT Government did not enact the Code in full. Instead, it has provided the following key requirement:

  • During the emergency period, a landlord must not give a tenant a notice to quit unless the landlord has, for a period of at least 30 business days, made good faith efforts to negotiate with the tenant to allow the tenant to remain in the premises.

Effectively, any landlord must be able to demonstrate that they have made “good faith efforts to negotiate” with a tenant. If following best practice, a landlord should be able to point to the Code to demonstrate how it has followed the principles outlined there.

In addition, the other protection to be received by a tenant is that the Notice to Quit period is now 30 days from the service of such a notice, when previously it was 14 days.

How to proceed

Parties to a lease should engage in good faith discussions. However, it is a moral rather than a legal obligation of either party to offer any amendments. In saying that, a tribunal or court may view such unwillingness to negotiate as a demonstration of bad faith. Always bear in mind that the landlord has an obligation to ‘make good faith efforts to negotiate with the tenant to allow the tenant to remain in the premises’.

If the parties’ negotiations are not fruitful, the landlord may wish to proceed towards the termination of the lease based on failure to pay rent and then, if necessary, eviction. Again, a landlord must engage in good faith efforts to negotiate with the tenant before it is lawfully permitted to issue such a Notice to Quit.

 Should no agreement be reached between the parties, the tenant’s avenues for assistance include an application to the Commissioner of Tenancies in accordance with the Act. Businesses may also seek help from the ‘Small business champions’ program, which is offered by the Northern Territory Government.

Conclusion

Whether you are a landlord or tenant, we understand the difficult times Territory businesses currently face. If you find yourself in a position where a commercial tenancy negotiation is required during the COVID-19 emergency period, then please bear in mind – regardless of whether you are a landlord or a tenant – that a landlord must not give a tenant a notice to quit unless the landlord has, for a period of at least 30 business days, made good faith efforts to negotiate with the tenant to allow the tenant to remain in the premises.

Should you require any assistance with regards to your lease, current negotiations or rights generally, please contact us on 89416355 to book an appointment or contact the writer at demitri@bowden-mccormack.com.au.

The above summary is based on the law as at 06 August 2020..

It covers the relevant legal matter in a general way and is intended for information purposes only rather than as specific legal advice.

Bowden McCormack does not assume any duty of care in relation to this document and specific advice should be sought and obtained in relation to one’s own circumstances before taking any action on the matter addressed in the summary