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Another round of COVID-19 retail leasing and commercial leasing laws

21 December 2020

#Property, Planning & Development, #Dispute Resolution & Litigation, #COVID-19

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Another round of COVID-19 retail leasing and commercial leasing laws

NSW’s COVID-19 leasing laws are again being extended. Uncannily, this coincides with increases in community COVID-19 and state borders closing.

New regulation from 1 January 2021

On Friday, the Retail and Other Commercial Leases (COVID-19) Regulation (No 3) 2020 was made. It includes some important changes.

Recapping, the COVID-19 leasing laws primarily prevent landlords enforcing leasing rights, such as terminations, against ‘impacted lessees’ for not paying rent. However, this is only for leases entered into before 24 April 2020. The protections are only for arrears incurred after that time. Also, the protections cease if tenants do not demonstrate their ‘impacted lessee’ status – based on JobKeeper and 2018/19 turnover. They may also end if a landlord fully complies with its re-negotiation obligations.

How the new laws work with the current COVID-19 regulations

The new COVID-19 regulation commences on 1 January 2021 and ends 6 months later. The actual protections do not last that long – ending on 28 March 2021. Like the last round of changes, the extended end date seems a portent of a further extension.

The current COVID-19 regulations end on 31 December 2020, and the new regulations do not affect these rights prior to this date. However, unless an impacted lessee qualifies under the new regulation, it will no longer have its current protections. Landlords can then act on the sorts of breaches that were protected by the current laws (arrears and not trading, etc.) once the current regulation ends. However, some care is needed. While a post 31 December 2020 breach is actionable for tenants not covered by the new laws, the breach has to be for a time after 31 December 2020. Landlords cannot begin acting on failures to pay rent owed from 24 April 2020 to 31 December 2020. 

Main changes under the new COVID-19 regulations

The biggest change is to which tenants qualify as ‘impacted lessees’. From 1 January 2021 this requires:

  • a lease which commenced prior to 24 April 2020
  • a tenant who receives JobKeeper – which means the tenant’s business must be suffering downturn to qualify under this scheme
  • a tenant whose 2018/19 turnover was less than $5 million (i.e. not the $50 million allowed in the past 2 editions of the COVID-19 regulations).

A less obvious, but practically important change, is an extra hurdle for landlords where a tenant does not re-negotiate. Currently, the prohibition on prescribed actions can end if the tenant does not comply with the re-negotiation obligations (see clause 7 of the retail lease regulations and clause 5 of the commercial lease regulations). This includes a tenant showing how it is an impacted lessee. This can assist a landlord by giving it a relatively quick pressure point – useful in trying to arrive at a re-negotiated COVID-19 position. If the tenant won’t meaningfully re-negotiate, a landlord can threaten to pursue a guarantor, draw on a bank guarantee etc.

Under the new regulation, while a landlord still has this right, it now needs enforcement as an ‘impacted commercial lease dispute’ (new clauses 7(1) of the retail lease regulations and 5(1) of the commercial lease regulations). This often means the landlord must progress to the NSW Civil and Administrative Tribunal to obtain relief, blunting an otherwise useful weapon – the landlord’s threat cannot be enforced with any real speed. In fact, if NCAT is approached, this process is likely to take many weeks and not be concluded by 28 March 2021.

Consider how many types of protected tenants now exist

One consequence of the COVID-19 laws being changed, shaped and amended to balance economic and public safety issues during a pandemic is the number of classes of tenants landlords now confront. Below is a list. It’s exhaustive to contemplate but the new reality:

  • firstly, tenants who have never qualified under any COVID-19 regulations because their turnover exceeded $50 million in 2018/19 or they do not receive JobKeeper
  • secondly, tenants who do not qualify under any COVID-19 regulations because their lease (and not by exercising an option) commenced after 24 April 2020
  • thirdly, tenants who qualified under the COVID-19 regulations, but who reached an agreement with the landlord where, if breached, the landlord can take a prescribed action
  • fourthly, tenants who qualified under the COVID-19 regulations, but who reached an agreement with the landlord which does not say what happens if the tenant breaches
  • fifthly, tenants who once qualified under the COVID-19 regulations, but who under the current laws did not take steps to demonstrate their qualification as an impacted lessee or JobKeeper recipient, or did not re-negotiate in good faith. Here tenant’s own conduct results in a loss of protections which landlords can act on quickly
  • sixthly, tenants who once qualified under the COVID-19 regulations, but who under the post 1 January 2021 laws do not take steps to demonstrate their qualification as an impacted lessee or JobKeeper recipient, or did not re-negotiate in good faith. Here tenant’s own conduct results in a loss of protections, but a landlord needs to treat these as a dispute requiring NCAT or court orders 
  • seventhly, tenants whose leases ended during the prescribed period (i.e. between 24 April 2020 and 31 December 2020), or breached the lease in ways besides not paying rent accrued between 24 April 2020 and 31 December 2020, so the lease can end for non-COVID-19 reasons
  • eighthly, those tenants who are receiving the COVID-19 protections because they are an impacted lessee, but whose status as an ‘impacted lessee’ ends after 1 January 2021
  • ninthly, those tenants who are receiving the COVID-19 protections because they are an impacted lessee, and who will continue their status as an impacted lessee after 1 January 2021.

Some consequences

These different classes of tenants can have different practical outcomes. Take rent increases as a relatively simple example:

  • for some groups of tenants – those who did not obtain protections or who lost protection – rent increases could always have been available
  • for other groups of tenants, from 1 January 2021, rent can increase from them on. This would be those who were protected but whose ‘impacted lessee’ status ends
  • for those tenants who continue as impacted lessees, the protections continue so there can be no rent increases until 28 March 2021.

We will continue to monitor for further information and updates.

Author: Bede Haines

Disclaimer
The information in this publication is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, we do not guarantee that the information in this newsletter is accurate at the date it is received or that it will continue to be accurate in the future.

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