Rent relief for ECEC services with new mandatory Code of Conduct

The National Cabinet has agreed that state and territory Governments will implement a new mandatory Code of Conduct (Code) that will impose a set of ‘good faith’ leasing principles where small or medium sized (SME) business tenants who are eligible for the JobKeeper payment program are supported during the COVID 19 pandemic. 

This new initiative will likely be well received by the early childhood education and care (ECEC) sector and provide additional certainty about managing costs in an environment where revenues have been forced lower due to the ECEC Relief Package announced last week. 

The Code will provide a framework for tenants with a turnover of less than $50 million, to adjust down their rental contributions proportionally to reflect the decline in turnover, to ensure that the burden of COVID-19 related declines is shared between landlords and tenants. 

Commenting on the measures Prime Minister Scott Morrison said that the Code “provides a proportionate and measured burden share between the two parties while still allowing tenants and landlords to agree to tailored, bespoke and appropriate temporary arrangements that take account of their particular circumstances.”

The Code will come into effect from a date yet to be determined after 3 April 2020 and will be defined by each state and territory jurisdiction. 

Leasing principles help define what is possible for tenants in negotiations 

When negotiating and finalising the temporary arrangements for rental relief the following leasing principles should be applied:

• Landlords must not terminate leases due to non-payment of rent during the COVID-19 pandemic
• Tenants must remain committed to their lease and abide by key terms in the new arrangements, such as payment of reduced rent. If they don’t then they lose protections
• Landlords must offer tenants proportionate reduction in rents payable in the form of waivers and deferrals of up to 100 per cent of the amount ordinarily payable

• Reductions are to be based on the reduction in the tenants trade during the pandemic period with a subsequent reasonable recovery period
• Payment of rental deferrals by the tenant must be amortised over the balance of the lease and for a period of no less than 24 months
• Any reduction in charges like land tax or council rates must be passed on to the tenant

• Landlords should share in the benefit of any deferrals of loan payments it has managed to secure from a financial institution
• Landlords should, where appropriate, seek to waive recovery of any other expenses (outgoings) by a tenant
• If negotiated arrangements necessitate repayment the repayment should not place unnecessary burden on the tenant and should commence at the earlier of the lease expiring or the pandemic ending

• No fees, interest or other charges should be applied to waived rents and no fees, charges nor punitive interest on deferred rent
• Landlords must not draw on the tenants security for the non payment of rent until the pandemic is over
• The tenant should be provided an opportunity to extend the lease by the same amount of time rent has been deferred to give it an opportunity to trade out of the situation

• Landlords will not raise rents during the pandemic
• Landlords cannot apply any prohibitions or levy’s if a tenant elects to shorten trading hours

The governance of the Code will be managed through a set of principles designed to ensure fairness and proportionate responses whilst seeking to appropriately balance the landlord and tenants respective interests. 

The list of principles contains eleven specific items that are intended to support the creation of a good faith platform from which both landlord and tenant can come to an agreement based on the leasing principles highlighted above. 

Where tenants and landlords cannot reach an agreement the matter should be referred to applicable state and territory leasing dispute resolution processes, such as the Small Business Commissioners/Champions/Ombudsman where applicable.

The Code will be supported by state based Industry Code Administration Committees, comprising representatives from relevant industry bodies representing landlord, tenant and SME interests, with an Independent Chair appointed by the relevant State/Territory Government.

The Committee members’ roles will be to (1) promote awareness of the Code; (2) encourage application of the Code; (3) encourage its application by the broader retail industry; and (4) monitor the operation of the Code.

The Committee is expected to meet at least fortnightly with the Committee documenting key action items and outcomes of each meeting.