Following our previous discussion on new COVID-19 leasing laws in NSW, the NSW Government has recently updated its COVID-19 leasing laws – Retail and Other Commercial Leases (COVID-19) Amendment Regulation 2021 (Regulation) – effectively reintroducing the 2020 laws.
The updates include landlords and tenants having renegotiations, the National Code of Conduct (Code) applying, and, as per the Code, rent reduction being split, at a minimum, between 50 per cent deferral and 50 per cent waiver.
What does the Regulation entail?
- The Regulation applies to leases before 26 June 2021, including options exercised after this time but where the original lease is pre-26 June 2021.
- The prescribed period runs from 13 July 2021 to 22 January 2022.
- ‘Impacted lessees’ are protected. An ‘impacted lessees’ must:
- firstly, qualify for one or more of the government’s relief schemes: 2021 COVID-19 Micro-business Grant, 2021 COVID-19 Business Grant, or 2021 JobSaver Payment
- secondly, its 2020/21 turnover (including at group level) was less than $50 million.
- The tenant is obliged to supply evidence of its impacted lessee status. This clause is potentially problematic, by suggesting a tenant must prove it can achieve impacted lessee status. If the tenant cannot, is a landlord then able to treat the tenant as not having an impacted lessee status? The answer seems to be ‘no’. Being an impacted lessee is a fact – the tenant either does or does not meet the above definition. If the tenant does not evidence their impacted status, a landlord needs to be sure the tenant is in fact not an impacted lessee if they want to take a ‘prescribed action’ (see below).
- Rent cannot be increased during the prescribed period. This excludes turnover rent. The turnover exception stands to reason, but may also be a policy nudge to encourage turnover rent either as part of renegotiations (below) or for consideration in future leases.
- Where an ‘impacted lessee’ does not pay rent during the prescribed period, landlords cannot take ‘prescribed actions’ (e.g. demanding rent, drawing on bank guarantees). Instead, two things must occur – firstly, a Small Business Commissioner mediation, and secondly, there needs to be a renegotiation.
- The renegotiation obligations could become burdensome:
- even if a landlord does not want to take a prescribed action, either party to the lease can request renegotiation
- renegotiations must commence within 14 days
- the parties must act in good faith
- the parties must consider the Code and COVID-19’s economic impacts. This includes the 50 per cent waiver or deferral.
- Parties can request additional renegotiations during the prescribed period. However, this right has limitations. Further, parties cannot renegotiate rent for a period already covered by a renegotiation. Instead, they may choose to stage renegotiations over the prescribed period. For example, a landlord and tenant may agree on a deferral or waiver for the next two months, and then renegotiate for the months after that. While administratively difficult, there could be upside if retail rebounds – future negotiations may include smaller reductions.
- If an impacted lessee does not participate in renegotiation, the landlord can consider itself as having complied with its obligations. This does not mean the landlord can then take action – the Regulation suggests a mediation is still needed, but there is one less issue to mediate about – the renegotiation.
- The Regulation does not give the court or the NSW Civil and Administrative Tribunal (NCAT) power to impose renegotiated terms, but says the court or NCAT must consider the Code when dealing with leases.
Author: Bede Haines
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 article is accurate at the date it is received or that it will continue to be accurate in the future.