PRESS RELEASE: “Do-it-yourself” COVID-19 Code of Conduct lease agreements will lead to legal strife: Commercial law expert

“Do-it-yourself” COVID-19 Code of Conduct lease agreements will lead to legal strife: Commercial law expert

PRESS RELEASE – MAY 1, 2020

Landlords and tenants navigating Australia’s new COVID-19 Code of Conduct for commercial leases are being warned to avoid entering into informal, “do-it-yourself” agreements that could morph into protracted legal disputes when the coronavirus pandemic subsides.

The National Cabinet Mandatory Code of Conduct, released on April 3, outlines various “good faith” principles recommending how landlords should negotiate rent waivers and deferrals to eligible commercial tenants during the COVID-19 pandemic period.

States and territories are expected to enforce the code via future legislation.

While the code mandates that landlords and tenants should act in an “open, honest and transparent” manner when negotiating rental concessions, such negotiations are inherently risky when conducted without a proper legal framework, says commercial lawyer Andrew Rogers from Legal Origami.

“While it’s tempting for landlords and tenants to enter into quick, DIY agreements during this stressful period, this ultimately puts both parties at substantial risk,” Mr Rogers says.

“Back-of-the-envelope negotiations, or informal chats over the phone with no written records, rely on the good intentions and fallible memories of both parties.”

“If the relationship goes sour in the future, or if the economic situation deteriorates further, then these kinds of informal arrangements will inevitably lead to costly disputes.”

Mr Rogers advises that landlords and tenants changing the terms of a lease need to be precise about any rental waiver amounts, periods of deferrals, interest amounts, terms of extensions, grounds for termination, and other considerations.

“All of these terms need to be codified into a written, legally binding contract.”

“Otherwise you are entering into an agreement that is likely filled with ambiguity and uncertainty, and ripe for legal exploitation later on.”

Legal Origami writes legally-binding COVID-19 Code of Conduct agreements for landlords via an online questionnaire and one-time payment of $129.

The National Cabinet Mandatory Code of Conduct is applicable to all tenants suffering financial hardship due to COVID-19, as evidenced by their eligibility for the Federal Government’s JobKeeper Program and with an annual turnover of up to $50 million.

The Code requires that landlords must offer eligible tenants rent reductions or deferrals proportionate to the reduction of the tenant’s trade.