The NSW Government published on Friday 24 April 2020 the Retail and Other Commercial Leases (COVID-19) Regulation 2020 (Regulation). This is the formal adoption by the NSW Government to ratify and implement, with effect from 24 April 2020, the National Cabinet Mandatory Code of Conduct (Code of Conduct) issued by the Australian Government on 3 April 2020 to prescribe a set of good faith leasing principles to deal with the COVID-19 pandemic on the economy.
Summary of critical issues
- The Regulation operates for a period of 6 months (24 April 2020 – 23 October 2020) unless otherwise extended by the Government (Prescribed Period). NSW Parliament may also suggest changes once it has been recalled on 11 May 2020 however these would be expected to be minor adjustments only.
- It affects both Retail and Commercial Leases but only if the Tenant is eligible for the JobKeeper assistance scheme offered by the Australian Government AND their turnover is less than $50,000,000.00 based on the 2018/19 financial year. The Regulation does not affect:
a. Leases where the Tenant is not eligible for the JobKeeper assistance scheme.
b. Agricultural leases; and
c. Leases entered into after 24 April 2020 (unless arising from an exercise of an option to renew). Therefore, any arrangement for rent relief or other protections under the Regulation must be addressed in the Lease before it is entered into as the parties are unable to rely on the Regulation once the Lease has been entered into.
- Where a lease is part of a larger group, the calculation of turnover includes internet sales and those of its subsidiaries and holding companies. Therefore many tenants may not actually qualify for relief if they have a strong online presence where internet sales can keep them operating sufficiently.
- During the Prescribed Period, the Landlord is only restricted from taking certain enforcement action for the failure to pay rent and outgoings, not open for trade to the public or otherwise comply with a law relating to COVID 19. Therefore, the Tenant must still comply with the Lease in all other respects and the Regulation does not relive a tenant from complying with all other terms (such as repairs and maintenance, insurances, and paying other costs not included in rent or outgoings).
- The Landlord during the Prescribed Period:
a. is prohibited from taking enforcement action against the Tenant, including termination, eviction, calling on security and other similar steps.
b. must not increase the rent. Any rent increase due during the Prescribed Period must be waived.
c. must pass on any relief it receives for Outgoings onto the Tenant. For example, if the Tenant is required to pay land tax as an Outgoing, but the Landlord receives a reduction on their land tax bill because of COVID 19, that saving is also passed onto the Tenant.
- The same principles under the Code of Conduct are contained within the Regulation. That is, the parties must act honestly and in good faith in engaging in negotiations for a reduction in rent as a result of COVID 19. Any reduction in rent is to have regard to the proportionate reduction in turnover of the Tenant, where at least 50% is a waiver of rent and the balance as a rent deferral which must be repaid over no less than 24 months. The parties are however free to make their own agreement and are not restricted to this.
- The Tenant must comply with the terms of the agreement with the Landlord under the Regulation. For example, if the Tenant fails to pay the agreed rate of rent under the Regulation, the Tenant would still be committing a breach of the Lease and the Landlord may exercise their rights accordingly. However, under the Regulation, the Landlord cannot evict the Tenant but must first go through the mediation process set out in the Regulation through NCAT.
- Once any terms are agreed between a Landlord and Tenant, it is our recommendation that this be formalised in a formal deed of variation to document both the terms of the rent arrangements but also other matters such as confidentiality, the ability to review the agreement if there are clear improvements in the turnover of the Tenant, and any extension to the lease term to accommodate the deferral repayment of any rent.
If you have any questions in relation to this article, feel free to contact Wade Thomas on email@example.com or by phoning 02 4626 5077.
The contents of this publication are for reference purposes only. This publication does not constitute legal advice and should not be relied upon as legal advice. Specific legal advice should always be sought separately before taking any action based on this publication.