There was a time only a few months ago when investing in property seemed like such a good idea. There will be a time when it becomes a good idea again.

For the time being the property world is full of renters who can’t pay and landlords with no income. There are no rights and wrongs. Just people doing it hard.

The federal and state governments can only do so much. Leasing is very much a state matter. However, the National Cabinet which has been established means that all governments are involved in discussions and the implementation of law changes.

Moratoriums on evictions of residential tenants are effectively in place . The rent is still payable and when the moratorium is ended whenever that might be don’t think that there will not be a judgement day.

To date the focus however has been on commercial leases. The National Cabinet has issued a Mandatory Code of Conduct. It relies very much on all parties showing good faith. At a time like this you would hope that happens. However, when the financial pressure gets too much the human experience is that charity may go out the window. Let’s hope that in this instance being commercial also means being fair.

The code proceeds on the basis of core principles:

• Landlords and tenants have common interests. Staying alive financially.
• Landlords and tenants will share information in relation to revenue, expenses, and profit.
• The arrangements to be entered into should not be such that the landlord removes all risk normally assumed under a lease.

Within those core principles are leasing principles to be applied on a case by case basis:

• Leases must not be terminated during the pandemic period or reasonable subsequent recovery period for non-payment of rent.
• Tenants must otherwise comply with their other obligations.
• On a case by case basis landlords must offer up to 100% rent relief by way of waivers or deferrals based on a reduction of the tenant’s trade.
• The waiver component must be not less than 50% of what is offered. The tenant can in turn waive that requirement on the part of the landlord.
• Rental deferrals must be amortised over the balance of the lease term or 24 months.
• But what happens to the rental guarantee or bond on the termination of the lease. Well the landlord cannot draw on that during the pandemic period or reasonable subsequent recovery period
• Reductions in charges payable by the landlord should be passed on.
• Where appropriate landlords should waive recovery of outgoings. But what if the rent is an inclusive of outgoings rental.
• The tenant is to be given the opportunity of extending the lease term for a period equivalent to the waiver and deferral period so that the tenant has additional trading time to recover.
• Rents are also to be frozen.

If agreement cannot be reached the landlord and tenant must undergo mediation.

You can find the Code at https://www.pm.gov.au/sites/default/files/files/national-cabinet-mandatory-code-ofconduct-sme-commercial-leasing-principles.pdf.

In New South Wales the principles have been legislated.

The Retail and Other Commercial Leases (COVID-19) Regulation 2020 (NSW) came into force on 24 April 2020 and will be repealed on 25 October 2020.

The Regulation needs to be read with an amended Schedule 5 to the Conveyancing (General) Regulation.

Can your tenant be categorised as an impacted lessee? Is the lessee’s turnover more than 50 million? If it is then the tenant cannot be an impacted lessee. Even though there is an impact.

If they are an impacted lessee the lessor cannot take a prescribed action without complying with the Regulation (clauses 5 and 6 of the Conveyancing (General) Regulation).

Section 8 of Schedule 5 of the Conveyancing (General) Regulation provides that nothing in the Schedule prevents a lessor from taking a prescribed action if the grounds are not related to the economic impacts of the COVID-19 pandemic.

What is a prescribed action? Quite a lot of things as it transpires. It is an action where you take action under the provisions of a commercial lease or seek orders or issue proceedings in a court or tribunal for any of the following:

• eviction of the lessee from premises or land the subject of the commercial lease
• exercising a right of re-entry to premises or land the subject of the commercial lease
• recovery of the premises or land
• distraint of goods (for non-lawyers the seizure of property)
• forfeiture
• damages
• requiring a payment of interest on, or a fee or charge related to, unpaid rent otherwise payable by a lessee
• recovery of the whole or part of a security bond under the commercial lease
• performance of obligations by the lessee or any other person pursuant to a guarantee under the commercial lease
• possession
• termination of the commercial lease
• any other remedy otherwise available to a lessor against a lessee at common law or under the law of New South Wales

The legislation is not that clear or precise. The definition of impacted lessee says nothing about how one evaluates a decrease in turnover. It seems that if the lessee business qualifies for the Job Keeper Program that is sufficient. Even if the downturn in business has nothing to do with COVID-19.

So, it could get very messy thereby emphasising the need for a negotiated outcome which after all is the underlying philosophy of the Mandatory Code of Conduct.

If a lessee is an impacted lessee then any action which is prescribed cannot be taken unless negotiations have taken place which have regard to the economic impacts of the pandemic and the National Code of Conduct. Which leaves open the possibility that on the one hand the lessor may take the view that there have been no economic impacts on the lessee’s business caused by the pandemic or at least not sufficient to entitle the lessee to the Job Keeper Program and on the other hand a government department says the lessee is entitled to participate in the program. In those circumstances is the lessor entitled to take a prescribed action. Maybe. Maybe not.

And when all this over will we see a new dynamic? Will Westfield love its tenants? Will tenants love Westfield? Will the individual property landlord investor take an interest in their tenant and realise that the tenant is in effect their partner? A profitable tenant is a good tenant. Landlords may realise that good tenants mean their property is worth more. Tenants may begin to realise that a good honest open relationship with the landlord may mean that when times are good you pay a little more and when times are bad your landlord may show compassion. Call me naïve but in a post pandemic world who knows.