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Commercial Lease Agreement Non-Retail during COVID-19 Pandemic Fill out the template

Commercial Lease Agreement (Non-Retail) during COVID-19 Pandemic

Last revision
Last revision 30/12/2020
Formats Word and PDF
Size 18 to 25 pages
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Last revision: 30/12/2020

Size: 18 to 25 pages

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Commercial Lease Agreement (Non-Retail) during COVID-19 Pandemic

This Commercial Lease Agreement can be used when a commercial property is being rented from a landlord (or lessor) to a tenant (or lessee). This is not designed for retail leases (see the discussion of the differences between retail leases and commercial leases, below).

This lease has been adapted for use during the COVID-19 Pandemic, in accordance with the Mandatory Code of Conduct for small and medium sized commercial tenancies impacted by the COVID-19 pandemic (discussed further below).

For commercial properties (that are not affected by retail tenancy legislation), this Lease will provide a quick and easy way to outline all of the terms of the agreement between the parties.

This Lease will create a legally binding contract between the parties, outlining the rights and responsibilities of both the landlord and the tenant. This lease contains a number of variable terms, including:

  • whether the parties are renting part or all of a property
  • whether other items (such as equipment) are being included with the lease
  • the length of the lease
  • whether the tenant will have options to renew the lease
  • whether guarantors to be included in the lease
  • the amount of rent and the frequency of payments
  • whether a security deposit will be held
  • what the tenant can do with the property
  • how the agreement can be terminated
  • the parties' rights after a breach

Mandatory Code of Conduct providing temporary relief for some tenants affected by COVID-19

In April 2020, in response to the Coronavirus/COVID-19 pandemic, the National Cabinet of Australia has implemented a Mandatory Code of Conduct for small and medium sized commercial tenancies impacted by the COVID-19 pandemic ("Code"). In response, state and territory governments have been required to introduce their own laws that reflect the Code.

The Code is intended to apply for a limited period of time. The end dates vary between the various states and territories. In most cases the measures are scheduled to end in late 2020 or early 2021, but they may be extended. However the COVID-19 situation is rapidly changing, so parties should check for up to date information with the relevant state or territory authority, and/or seek legal advice.

The Code introduces a number of temporary measures to assist some tenants through the business challenges posed by the COVID-19 pandemic.

The Code applies to businesses that:

  • have an annual turnover of up to $50 million; and
  • are eligible for the Australian Government's JobKeeper program.

If the Code applies, then it imposes a set of 14 principles with which landlords and tenants must comply. This includes:

1. Landlords must not terminate leases due to non-payment of rent during the COVID-19 pandemic period (or reasonable subsequent recovery period).

2. Tenants must remain committed to the terms of their lease, subject to any amendments to their rental agreement negotiated under the Code. Material failure to abide by substantive terms of their lease will forfeit any protections provided to the tenant under the Code.

3. Landlords must offer tenants proportionate reductions in rent payable in the form of waivers and deferrals of up to 100% of the amount ordinarily payable, on a case-by-case basis, based on the reduction in the tenant's trade during the COVID-19 pandemic period and a subsequent reasonable recovery period.

4. Rental waivers must constitute no less than 50% of the total reduction in rent payable under principle #3 above over the COVID-19 pandemic period and should constitute a greater proportion of the total reduction in rent payable in cases where failure to do so would compromise the tenant's capacity to fulfil their ongoing obligations under the lease agreement. Regard must also be had to the Landlord's financial ability to provide such additional waivers. Tenants may waive the requirement for a 50% minimum waiver by agreement.

5. Payment of rental deferrals by the tenant must be amortised over the balance of the lease term and for a period of no less than 24 months, whichever is the greater, unless otherwise agreed by the parties.

6. Any reduction in statutory charges (e.g. land tax, council rates) or insurance will be passed on to the tenant in the appropriate proportion applicable under the terms of the lease.

7. A landlord should seek to share any benefit it receives due to deferral of loan payments, provided by a financial institution as part of the Australian Bankers Association's COVID-19 response, or any other case-by-case deferral of loan repayments offered to other Landlords, with the tenant in a proportionate manner.

8. Landlords should where appropriate seek to waive recovery of any other expense (or outgoing payable) by a tenant, under lease terms, during the period the tenant is not able to trade. Landlords reserve the right to reduce services as required in such circumstances.

9. If negotiated arrangements under the Code necessitate repayment, this should occur over an extended period in order to avoid placing an undue financial burden on the tenant. No repayment should commence until the earlier of the COVID-19 pandemic ending (as defined by the Australian Government) or the existing lease expiring, and taking into account a reasonable subsequent recovery period.

10. No fees, interest or other charges should be applied with respect to rent waived in principles #3 and #4 above and no fees, charges nor punitive interest may be charged on deferrals in principles #3, #4 and #5 above.

11. Landlords must not draw on a tenant's security for the non-payment of rent (be this a cash bond, bank guarantee or personal guarantee) during the period of the COVID-19 pandemic and/or a reasonable subsequent recovery period.

12. The tenant should be provided with an opportunity to extend its lease for an equivalent period of the rent waiver and/or deferral period outlined in item #2 above. This is intended to provide the tenant additional time to trade, on existing lease terms, during the recovery period after the COVID-19 pandemic concludes.

13. Landlords agree to a freeze on rent increases (except for retail leases based on turnover rent) for the duration of the COVID-19 pandemic and a reasonable subsequent recovery period, notwithstanding any arrangements between the landlord and the tenant.

14. Landlords may not apply any prohibition or levy any penalties if tenants reduce opening hours or cease to trade due to the COVID-19 pandemic.

For further information, check the full text of the Mandatory Code of Conduct. Further information is also available from the Australian Government and this also provides links to the relevant state and territory governments, which can provide more specific information about the rules in the region where the property is located. If in doubt the parties should seek legal advice.

Risks with long term leases

For long term leases (usually over 5 years, or over 10 years) the parties may need to pay close attention to laws relating to subdivisions in the relevant state or territory. This may be found in conveyancing legislation or in planning legislation. In some cases, leases over a certain length of time are deemed to be subdivisions, according to that legislation.

As a result, the parties may be found to have subdivided land without the appropriate planning approvals. This can lead to prosecution and fines. In addition, a court may refuse to uphold such a lease, meaning that the tenant may be released from the obligation to pay rent.

If in doubt, the parties should seek legal advice.

What are the differences between a commercial lease and a retail lease?

Each state and territory in Australia has specific legislation which says that some types of commercial property can only be rented through a "retail lease" (rather than a general commercial lease). The law also imposes more restrictions on retail leases than it does for commercial leases.

The exact requirements for retail leases vary from one state or territory to the other, but it is often a question of the size of the property being leased and/or what it is going to be used for. In general, retail shops and similar businesses are likely to be affected by "retail leases". Other commercial property such as scrap yards or warehouses may not be affected.

Landlords who have property that fits within this retail tenancy legislation must only rent the property out using a retail lease. They are likely to face penalties if they fail to do this.

Therefore, it is important to determine whether or not the property being rented is going to be affected by the retail tenancy legislation in the relevant state or territory. Each state and territory government has an office or department that deals with fair trading or small business matters, (such as the "Small Business Commissioner" or the office of "Consumer Affairs and Fair Trading"). This is usually a good place to go for information about retail leases in the relevant state or territory.

How to use this document

The completed document should be provided to all parties (including any guarantors, if applicable). Each party should be given the opportunity to read the agreement, and may need some time to do this given the length of the document.

The parties will all then need to sign the document. Each party should keep a validly signed copy of the agreement.

The tenant will then need pay the rent and any security deposit on or before the dates as provided in the agreement.

Any applicable law

The various retail tenancy legislation in each state and territory affects some commercial leases.

This commercial lease is a contract between the landlord and the tenant, and as such, general principles of contract law, as provided by the common law, will apply.

For long term leases, legislation dealing with subdivisions in the relevant state or territory may be relevant. Laws dealing with subdivisions are often contained in conveyancing legislation or planning and land use legislation.

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