In this VLOG on the Mandatory Code of Conduct for Commercial Leasing Marcus looks at the two key principles in relation to commercial leasing and what are the obligations of the tenants and the landlords. Two key principles of the mandatory code of conduct are:
- Rent Reduction must be proportionate to the tenants loss in turnover (minimum 50% wavier and 50% deferred);
- The Landlord must not draw on the tenants bond
Rent Reduction
In terms of rent reduction the landlord must offer a rent reduction to the tenant proportionate to the tenant’s loss in turnover. So if the tenant’s lost 70% of its turnover, then the landlord must offer a 70% reduction in the rent payable. That 70% must comprise of a 50% waiver and a 50% deferral, or whatever is negotiated between the parties. So let’s say that a tenant ordinarily pays $10,000 in rent. If they’ve lost 70% of their turnover, then they must be offered a 70% reduction, which is equivalent to $7,000. Now of that $7,000, 50% must be waived, which will be 3 1/2 thousand dollars, and the other 3 1/2 thousand dollars must be deferred. Now the payment of that deferred rent must be paid over the greater of 24 months or the length of the lease term.
The Tenants Bond
The second principle is in relation to the tenants bond. Now a landlord must not draw on a tenants bond in relation to rent payable. This is prohibited underneath the code and we wouldn’t recommend you do so.
If you have any questions in relation to the principles under the mandatory code, please do not hesitate to contact us at Southern Waters Legal. What do you think? We would love to hear your thoughts! Feel free to submit your comments below or comment on our Facebook Page or LinkedIn.
