Earlier in the year, we wrote about the “Mandatory Code of Conduct for SME Commercial Leasing Principles during COVID-19” released by the National Cabinet on 7 April 2020.  Since April, the New South Wales Government has passed the Retail and Other Commercial Leases (COVID-19) Regulation 2020 (Regulation), amended that Regulation, repealed that Regulation and replaced it with a new regulation (Retail and Other Commercial Leases (COVID-19) Regulation (No 2) 2020 (Regulation #2) and, most recently, introduced the Retail and Other Commercial Leases (COVID-19) Regulation (No 3) 2020 (Regulation #3) for a limited class of tenants. 

Having trouble working out your obligations and rights as a landlord or tenant?  This article provides an overview of the key things you need to know.

When does Regulation #2 apply?

It will apply to any “impacted lease” in relation to circumstances occurring during the “prescribed period”.

An “impacted lease” is a retail or commercial lease with a tenant who:

  • qualifies for the JobKeeper scheme[1]; and
  • had a turnover in the 2018–2019 financial year of less than $50 million[2].

Excluded from this definition are leases entered into on or after 24 April 2020 unless by a lease entered into by means of an option to extend or renew the lease or any other extension or renewal of an existing lese on the same terms as the existing lease.

The “prescribed period” is currently the period beginning on 24 April 2020 and ending on 31 December 2020. 

The NSW Government has announced a proposed extension of this period until 28 March 2021 for retail tenants with an annual turnover of under $5 million who experience a 30% decline in turnover for the 2020 December quarter.

Are there still restrictions on landlords terminating “impacted leases”?

Yes.  A landlord cannot terminate an “impacted lease” during the “prescribed period” on the grounds of:

  • non-payment of rent or outgoings during the “prescribed period”; or
  • a failure to open for business during the hours specified in the lease during the “prescribed period”,

unless the Small Business Commissioner has certified in writing that mediation offered to be conducted by the Small Business Commissioner has failed to resolve the dispute and given reasons for the failure.

Also, a landlord cannot terminate an “impacted lease” after the “prescribed period” on the ground of non-payment of a rent increase which was stipulated under the lease to apply during the “prescribed period” (unless the rent increase was on account of turnover rent).

However, if there are grounds for termination that do not relate to the economic impacts of the COVID-19 pandemic, a landlord can still terminate a lease.  In fact, many of the leasing cases that have come before the Court during the “prescribed period” have been held to be disputes to which the Code or Regulation would not have any application.

Are landlords still required to grant rent reductions? 

Regulation #2 allows either party to an “impacted lease” to request a renegotiation of the rent and other lease terms.  If this request is made, the parties must commence renegotiations within 14 days (or such other time agreed by the parties). 

The parties are required to renegotiate the rent payable under, and other terms of, the “impacted lease” having regard to the economic impacts of the COVID-19 pandemic and the leasing principles set out in the National Code of Conduct.  These principles are discussed in our previous article.

What evidence is a tenant required to give a landlord to demonstrate its loss of revenue?

The tenant must give the landlord:

  • a statement to the effect that the tenant is an impacted lessee; and
  • evidence that the tenant is an “impacted lessee” for the purpose of Regulation #2.

If the tenant does not do this, the landlord is taken to have complied with its obligations with respect to renegotiations.

Can a tenant request a further renegotiation?

Yes, but only if the request is made during the “prescribed period” and does not relate to rent for a period for which rent has already been reduced, waived or deferred.

What happens to tenants who no longer qualify for JobKeeper but did qualify earlier in the “prescribed period”?

There are specific provisions in Regulation #2 which apply.  SWS Lawyers can advise clients on whether these provisions will apply to their lease.

When does Regulation #3 apply to?

Regulation #3 will apply to retail shop leases where the tenant had an annual turnover of under $5 million in the 2018-19 financial year and the tenant has experienced at least a 30% drop in turnover in the December quarter 2020 compared to the December quarter in 2019. There is a special provision for not-for-profits which are only required to have experienced a 15% drop in the December quarter 2020.  Tenants covered by Regulation #3 are permitted to request further rent relief.   

 

The SWS property team are happy to talk to landlords, tenants and agents directly about how Regulation #3 will work and whether it will apply to their circumstances. 

 

[1] Under sections 7, 8, 8A and 8B of the Coronavirus Economic Response Package (Payments and Benefits) Rules 2020 of the Commonwealth.

[2] If the lessee is a corporation that is a member of a group — it is the turnover of the group that is relevant, and if the lessee is a franchisee — it is the turnover of the business conducted at the premises or land concerned that is relevant.

 

This article is not legal advice.  It is intended to provide commentary and general information only.  Access to this article does not entitle you to rely on it as legal advice.  You should obtain formal legal advice specific to your own situation.  Please contact us if you require advice on matters covered by this article.