Mediation under the Covid-19 Code of Conduct for commercial tenancies

If landlords and tenants cannot reach agreement on leasing arrangements under the National Cabinet’s COVID-19 commercial tenancies Code of Conduct (‘the Code’), the matter may be referred by either party to the applicable state or territory retail/commercial leasing dispute resolution process for ‘binding mediation’. Alike the rest of the Code, the dispute resolution mechanism is to be implemented by each State and Territory. The suggestion in the Code that the mediation is to be ‘binding’ begs the question as to the extent to which the outcomes will be enforceable and if so what options of appeal are available to the parties. In this note we examine South Australia’s implementation of the Code, specifically looking at the enforceability and practicality of what the Code labels ‘mediation’.

South Australia has now implemented the Code through the COVID-19 Emergency Response Act 2020 (‘the Act’). Under this Act, a party may apply to the Small Business Commissioner for the mediation or determination of a dispute that exists over whether or not a lessee is suffering financial hardship as a result of the COVID-19 pandemic. Parties may also apply to the commissioner for mediation of any other dispute in relation to issues arising under the lease due to the COVID-19 pandemic.

Participation in mediation or determination commenced under the Act is involuntary. If one party applies to the Commissioner for the mediation or determination of a dispute, the participation of the other party is required regardless of whether they are willing or unwilling to engage with the process.

Mediation under the Act

Mediation is traditionally a process in which parties identify the issues in a dispute, explore options, consider alternatives and attempt to reach an agreement with the assistance of a mediator. Conventionally, the mediator is present to facilitate discussion between the parties, decision making power remains with the parties and the outcome of mediation is not binding unless parties form an agreement.

Mediation is not defined under the Act or the Code. The Retail and Commercial Leases Act 1995 (SA) defines mediation of a dispute to include preliminary assistance in dispute resolution such as the giving of advice to ensure that the parties to the dispute are fully aware of their rights and obligations and there is full and open communication between the parties about the dispute. This definition is likely to be the most relevant to mediation under the Act.

In South Australia, the Civil (Consumer and Business) Division of the Magistrates Court serves as the commercial tenancy tribunal. All mediations in the Magistrates Court are currently being held by telephone. The Court has noted video conferencing software may be introduced in the future. It is likely this is the manner in which mediations and determinations under the Act will be held.

Is the mediation binding?

No, the outcome of mediation engaged in under the Act is not ‘binding’ on the parties as the language of the National Cabinet’s Code of Conduct may seem to suggest. In mediation the Commissioner is not there to make a decision and the outcome is not binding unless the parties choose to enter an agreement.

Determination under the Act

A determination made under the Act is a decision made by the Commissioner. The Commissioner may only make a determination on the matter of whether the lessee is suffering financial stress or hardship. If a lessee is suffering financial stress or hardship the other provisions of the Act, such as those governing rental waivers and delay, will apply to the tenancy agreement. To learn more about these provisions, see our previous blog.

Is a determination binding?

Yes, where the Commissioner makes a determination under the Act the parties are bound by the decision. A right to appeal the Commissioner’s determination is available through the Magistrates Court.

Questions of the practicality

The widespread economic effects of the trading restrictions imposed by the COVID-19 pandemic is placing strain on a wide proportion of commercial tenancies. As such, it is likely a large number of matters will be referred to mediation and/or determination under the Act. The volume of these matters is likely to result in significant delays and may well mean the rent relief arrangements under the Code remains contested and unresolved until after the end of the pandemic.

Choosing which option is best for you, either mediation or determination will depend on the nature of the ongoing negotiations and the circumstances between the parties. We can assist you with making this choice.

The cost of mediation

The cost of the mediation under the Act is a question that remains unanswered. There is no guidance provided by the Act. Usually, parties split the cost of mediation or choose a split that is equitable in the circumstances. It is unclear who will bear the cost of mediation or determinations under the Act, especially where one party is unwillingly forced to participate.

For further information please contact Rebecca Halkett or Stuart Jackson.