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Property: The need to observe good faith

Property: The need to observe good faith

By Peter Lowenstern

COVID-19 Real Property 

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Don’t launch into an explanation about the legal concept – instead, tell your client what they need to do in COVID-19 residential tenancy negotiations. 

Snapshot
  • The Residential Tenancies (COVID-19 Emergency Measures) Regulations 2020 provide the framework for resolving residential tenancy disputes arising from the pandemic.
  • They indicate landlords and tenants need to act in good faith when negotiating.

In a media release of 29 March, the National Cabinet announced measures to assist residential landlords and tenants affected by the COVID-19 pandemic. Shortly after, on 3 April, the National Cabinet released the Mandatory Code of Conduct SME Commercial leasing principles during COVID-19. The Code indicated good faith negotiations were a basic requirement for landlords and tenants. 

The good faith requirement has been replicated in Victorian measures introduced to deal with the catastrophic consequences of the COVID-19 pandemic on residential tenancies.

On 15 April, the Victorian government announced the reform of residential tenancy laws in line with the decisions of the National Cabinet. 

If a landlord and tenant need to adjust their residential tenancy because of the impact of the pandemic on the tenant, there is an expectation they will negotiate in good faith. Premier Daniel Andrews said as much in a press release: “[M]ore than ever we need to be working in partnership. Landlords working with tenants. Tenants working with landlords. . .”

The Premier reiterated the need for good faith in his second reading speech on the COVID-19 Omnibus (Emergency Measures) Bill 2020. Referring to the provisions affecting residential tenancies, he said “landlords and tenants will be expected to negotiate in good faith . . .”

The Residential Tenancies (COVID-19 Emergency Measures) Regulations 2020 provide the framework for resolving residential tenancy disputes arising from the pandemic. They, too, indicate landlords and tenants need to act in good faith when negotiating. For example, regulation 9 allows the Director of Consumer Affairs to “require a person seeking to have an eligible dispute dealt with to provide evidence . . . they have acted in good faith to resolve the dispute with the other parties”.

This is all well and good. But, what does it mean if you are advising a client who is going to negotiate?

All too often when the need to observe good faith in negotiations is raised it tends to be glossed over, brushed aside with an off-the-cuff comment along the lines of “it doesn’t mean you have to disregard your own interests you know”, or a lawyerly explanation of the legal concept leaves a client completely non-plussed.

The problem in attempting to explain the legal concept of good faith to your client is simply the difficulty of doing so in a way they will readily understand. 

So, if the question of need to observe good faith in negotiations with a residential tenant comes up, and you’re asked what that means, don’t launch into an explanation about the legal concept of good faith. Instead, tell your client what they need to do.

In the arena of COVID-19 residential tenancy good faith negotiations, your client needs to: 

  • meet with the other party (even if only possible via an electronic medium like Zoom)
  • provide relevant information about their circumstances
  • avoid being misleading or deceptive
  • be honest when responding to the other party
  • avoid taking unfair advantage of the other party by, for example, failing to correct a misapprehension on their part
  • listen carefully to what the other party has to say 
  • give due consideration to information provided by the other party
  • if the other party does not provide relevant information or what is provided is inadequate, ask for what is needed, explain why it is needed, seek agreement on when it will be provided and, if agreement cannot be reached, set a reasonable time for doing so 
  • avoid making threats 
  • avoid making unreasonable or unrealistic demands, including for information
  • understand concessions may have to be made during negotiations
  • make realistic, information-based decisions which take account of their own circumstances
  • if an agreement is reached, document and sign it with the tenant. ■

Peter Lowenstern is a former in-house counsel for the REIV and LIV Property Law Committee member.


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