Article by Matthews Folbigg Lawyers

Commercial Leases

National Cabinet has released the Mandatory Code of Conduct for Commercial Leases. The Code applies to tenants with a turnover of less than $50 million who are eligible for the JobKeeper programme and it is planned that state and territory governments will legislate the Code to give it legal effect.

Key aspects of the Code:

• landlords must not terminate leases due to non-payment of rent during the COVID-19 period (i.e. 6 months commencing from 1 March 2020 during which the JobKeeper programme is operational)
• landlords must offer proportionate rent reductions (up to 100%) through rent deferrals or waivers based on the reduction in the tenant’s trade – waivers must be no less than 50% of the rent reduction
• any deferred rent must be repaid over the balance of the lease term or 24 months (whichever is greater)
• the landlord must not draw on the tenant’s security bond or bank guarantee during this period
• any reduction in outgoings must be passed on to the tenant, and the rent must not be increased during this period
• as at the time of writing of this article (20 April 2020), the Code has not yet been implemented as law by the NSW government
• the Code requires landlords and tenant to negotiate “in good faith” and where the parties cannot agree, either party may refer the dispute to “binding mediation”

Takeaway

Landlords should consider what financial information it is reasonable to expect a tenant to provide in support of any request for rental reduction or waiver and tenants should compile relevant information urgently if they are entering into negotiations with their landlord.

Contracts

If you are seeking to terminate a contract or alternatively to enforce it, force majeure and frustration are relevant.

• for force majeure to operate there must be an express clause in the contract, whereas frustration does not require an express term to give it effect
• both concepts apply to similar situations – a supervening event occurs which prevents or delays performance of the contract through no fault of the parties and in circumstances outside of their control
• a force majeure clause will usually contain an exhaustive list of defined events, often including “acts or restraints of government authorities”
• frustration requires the circumstances to be “radically different” from those contemplated when the parties entered into the contract
• the consequences of force majeure and frustration differ – force majeure usually allows the parties to suspend performance and terminate the contract (without penalty) if the force majeure event continues for a certain period of time, whereas upon frustration occurring the contract comes to an end and the parties are discharged from further performance

Takeaway

It is vital that you seek legal advice before varying or terminating a contract or lease or walking away from your obligations under a contract or lease at any time and particularly if your business is affected by the Covid-19 crisis. Unlawful termination could amount to repudiation and may expose you to damages.

Disclaimer: This article is provided to readers for their general information and on a complimentary basis. It contains a brief summary only and should not be relied upon or used as a definitive or complete statement of the relevant law. Liability limited by a scheme approved under Professional Standards Legislation.