In response to the impact of COVID-19, measures for tenants in relation to leasing were implemented under the Mandatory Code of Conduct – SME Commercial Leasing Principles During COVID-19. The Code of Conduct applied to some leases covered by the Leases (Commercial and Retail) Act 2001 (ACT), preventing Landowners from taking action against Tenants for certain kinds of breaches occurring from 1 April 2020 until 27 September 2020.
The Code of Conduct has since been repealed by the Leases (Commercial and Retail) COVID-19 Emergency Response Declaration 2020 (No 2) which became effective from 28 September 2020 and is in force until the earlier of either the end of the declared state of emergency or 31 January 2021.
So, now that the Code of Conduct no longer applies to protect those Tenants, what happens? And what is this about a “reasonable recovery period”?
(Psst… We use some technical words in this article which are discussed in our previous entries on leasing in COVID-19.)
Can a Landowner issue a termination notice or take action against a Tenant for a breach that happened prior to the Code of Conduct?
👉🏻 The Code of Conduct applies to protect impacted tenants from termination or other action for a prescribed breach during the period 1 April 2020 to 27 September 2020
👉🏻 A Landowner cannot give a termination notice or take other action against an impacted tenant or former impacted tenant in relation to a prescribed breach, unless the lessor has engaged in good faith negotiation.
👉🏻 A termination notice or other action for a breach that occurred prior to 1 April 2020 does not fall within the mandatory application of the Code of Conduct and can be issued even to an impacted tenant or former impacted tenant.
Can a Landowner issue a termination notice or take action against a former impacted tenant?
👉🏻 The Code of Conduct continues to apply to former impacted tenants (tenants who are no longer impacted) for breaches during the period 1 April 2020 to 27 September 2020
👉🏻 For breaches to which the Code of Conduct applies, the Landowner cannot terminate for non-payment during the period 1 April 2020 to 27 September 2020, or during a ‘reasonable recovery period’.
👉🏻 A Landowner cannot give a termination notice or take other action against an impacted tenant or former impacted tenant in relation to a prescribed breach, unless the lessor has engaged in good faith negotiation.
👉🏻 The Code of Conduct indicates that where good faith negotiations have taken place and an arrangement has been made, the Landowner cannot terminate a lease.
👉🏻 The Code of Conduct does not prevent a Landowner terminating or taking a prescribed action if the Tenant agrees to the termination or action, or if the Lessor has engaged in good faith negotiations and the Tenant surrenders the lease.
Can a Landowner issue a termination notice or take action against a Tenant after the expiry date of the Code?
👉🏻 For a prescribed breach that occurred during the period 1 April 2020 to 27 September 2020, the Landowner still cannot terminate the lease for a ‘reasonable recovery period’ unless they have entered into good faith negotiations.
👉🏻 If the Tenant agrees to the termination or action, or the Landowner has engaged in good faith negotiations and the Tenant surrenders the lease, the Landowner may terminate the lease.
👉🏻 If the Tenant breaches the lease after 28 September 2020, they are not protected by the Declarations and the Landowner can take action. However, the Code of Conduct itself (while non-binding) states that Landowners should not take action against Tenants during the COVID-19 Emergency, or during a ‘reasonable recovery period’.
👉🏻 Although ‘reasonable recovery period’ is not defined, any termination notice for breach during the period the Code of Conduct is in mandatory will need to be issued after that reasonable recovery period has passed.
Need a cheat sheet for the Code of Conduct? Grab our downloadable fact sheet here.
Still not sure where you stand? Whether you are a Landowner or a Tenant, Contact Us to discuss your situation. We’re at your service.