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Landlords and tenants need faith to overcome the devil in the detail

Opinion

Landlords and commercial tenants will have to work out how to share the pain or face the risk of even more government intervention in their affairs, writes Robert MacDonald.

 

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Australia’s landlords and commercial tenants need to have faith – good faith – as they renegotiate their pandemic-era relationships.

Because if they don’t, national and state governments might pass more even more prescriptive laws telling them what to do.

That’s the view of commercial property law specialist and Gadens Lawyers partner, John Nicolas.

Good faith is the key ingredient in the mandatory code of conduct for commercial tenancies, developed by Australia’s new National Cabinet and announced early this month.

To quote from its prelude:

“The purpose of this code of conduct is to impose a set of good faith leasing principles for application to commercial tenancies between owners/operators/other landlords and tenants, where the tenant is an eligible business for the purpose of the Commonwealth Government’s JobKeeper programme.”

In other words, the code, which runs to about 2000 words, provides rules of engagement but not detailed black letter law.

“The code is not the perfect solution but it’s all about balance,” Nicolas says.

“All the code and the government and everyone else involved in the picture is trying to do is get people to talk sensibly to each other with the view that we’re all in it together and we’ve all got to share some of the pain.

“But if governments form the view that landlords and tenants aren’t going to work together then I think they will legislate harder and more prescriptively.”

But a big challenge for everyone trying to act in good faith is that the code is not yet law.

Each state needs to formally adopt its own version of the nationally developed code, something Queensland hasn’t yet done, although it did pass legislation at Wednesday’s sitting of Parliament clearing the way to do so.

Until Queensland does finalise its position and reveal the devil in the detail, landlords and tenants will be negotiating somewhat in the dark.

And the detail is potentially quite devilish.

The Property Council of Australia’s Queensland director Chris Mountford sent a 12-page letter to Attorney General, Yvette D’Ath on Tuesday this week raising issues with more than 40 separate elements of the code.

These ranged from just who should be covered by the code and the treatment of sub-tenants to the mechanisms for calculating a tenant’s decline in revenue and the timing of grandfather clauses and reasonable recovery periods.

And in any event, the council noted, the State Government had already established six principles for commercial landowners to adhere to in order to be eligible for land tax relief under its own recently announced initiatives to help landlords and tenants during the COVID-19 crisis.

“These six principles correspond with the key overarching and leasing principles outlined in the code,” Mountford said in his letter to D’Ath.

The Property Council recommended that the Queensland Government therefore mandate the code’s key principles but allow the remainder of the code’s more-detailed principles to stand as an advisory best-practice guide rather than a legislated requirement.

“This will reduce regulatory complexity, reduce the length of time taken to achieve cashflow relief outcomes and enable landlords and tenants greater flexibility to achieve mutually agreeable solutions,” the council argued.

Whatever the final shape of the code, as Gadens’ Nicolas notes, not only is “the issue of balance incredibly hard to get right” but also “the reality is you can’t mandate for every circumstance.”

“But if everyone walks away generally happy and no one thinks they got a great deal out of it then the system has probably worked.”

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