The COVID-19 Leasing Code of Conduct in Action

In a recent court case in the Supreme Court of New South Wales the application of the Leasing Code of Conduct for the COVID-19 pandemic was called into action.

In that case the tenant had a history of being late with rental payments since 2016. By 17 March 2020 the tenant was in arrears of rent of approximately $65,000.00 for the months of January and February 2020. On 23 March 2020 the tenant decided to cease trade as a result of the trading restrictions imposed due to the pandemic and an 85% decrease in trade from the prior year. Around 25 March 2020 the tenant began to remove stock from the premises and requested to pay their arrears in instalments due to the impact of the pandemic. The tenant did not make the payments as per their requested instalment program. The landlord argued that the tenant had abandoned the premises by removing the stock and purported to terminate the lease. The tenant made an application to the Court for relief against forfeiture of the lease.

The Court decided that the action of the landlord in terminating the lease based on the assumption of an abandonment during the pandemic demonstrated a failure to act within the Code of Conduct. The Code of Conduct is very much in favour of the tenant and the Code, whilst not having a binding effect in this particular case, was held to include a set of good faith leasing principles applicable to commercial tenancies. The Code also provided that landlords could not terminate leases due to non-payment of rent during the pandemic period (and a reasonable subsequent recovery period).

The Court found that the tenant’s actions of removing items from the premises, given the pandemic, was not an indication that they had abandoned the premises. The Court therefore found that the only ground for termination was the fact that the tenant was in rental arrears. The Court authorised the bank guarantee to be paid to the landlord (which was 10 months of rent plus GST) despite the fact that the amount owing to the landlord was less than the amount of the bank guarantee. The Court granted the tenant relief against forfeiture of the lease on the condition that they paid the costs of the landlord’s legal proceedings and produced a new bank guarantee.

The decision of the Court appears to be a fair balancing of the rights of the landlord and tenant, particularly in the context of the pandemic. It allowed the landlord to recover the arrears of rent and also to be entitled to call upon the bank guarantee, but also gave the tenant an opportunity to be able to re-enter the premises on the basis the tenant paid the landlord’s legal costs of the Court proceedings and provided a substitute bank guarantee.

Our Commercial and Property Team at Solari & Stock can provide advice to landlords and tenants facing issues in relation to tenancy disputes.
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