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More COVID-19 retail and commercial leasing changes

07 December 2021

#Property, Planning & Development, #COVID-19

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More COVID-19 retail and commercial leasing changes

With little more than month to go before NSW’s COVID-19 laws end (on 14 January 2022), changes are still being made – one set of changes deals with impacted tenants from now on, and the other extends some tenant’s protection rights after 14 January 2022.  

Application of COVID-19 laws after 14 January 2022

On 14 January 2022, COVID-19 laws are being repealed. These have protected ‘impacted’ tenants by preventing landlords from taking “prescribed actions” (e.g. terminating a lease) for “prescribed breaches” (e.g. not paying rent), where the breach occurs during the “prescribed period” (13 July 2021 to 13 January 2022). Landlords were never shut out of their rights, but first needed to follow a prescribed re-negotiation and mediation process.

Because the COVID-19 laws end on 14 January 2022, it seemed that landlords who had not re-negotiated with their ‘impacted lessees’ could, from that date, exercise their rights. Arrears accrued during the prescribed period could be demanded and, if not paid, leases could terminate. But no – the new amendments now ‘save’ (or preserve) the COVID-19 laws, but only in the following circumstances:

  1. there must be a failure to pay rent and other money due during the prescribed period
  2. the tenant needs to have been an impacted lessee when the breach occurred; and
  3. only if the landlord has not complied with the current regulations regarding their re-negotiation obligations.

What should landlords do?

Where the above criteria are satisfied, landlords will need to follow the COVID-19 legislation before recovering rent. To this limited extent, the current laws will still apply from 14 January 2022. A landlord’s compliance will be achieved by either reaching an agreement with the tenant, or going through re-negotiation or a formal mediation, or where a landlord tries to re-negotiate but the tenant does not comply.

From December 2021, tenants can still be ‘impacted’ even if government grants end

Impacted lessee-hood turns on tenants receiving government grants and having a turnover of $5 million or less in 2020/2021. Being an impacted tenant means landlords cannot enforce leases for non-payments during the prescribed period, which ends on 13 January 2022.

To prevent tenants from stonewalling landlords, one party can ask the other to re-negotiate rent. Landlords stand to benefit. They become able to enforce where a tenant does not re-negotiate, or where the tenant re-negotiates but then fails to comply with the re-negotiated position.

Re-negotiation is available if a tenant was an impacted lessee during the prescribed period, even if the tenant is no longer impacted. Again, re-negotiation still has utility. The tenant may want a rent discount for when they were impacted, and the landlord may want some payment or pathway to enforce for non-payment.

But what about re-negotiating rent for the time when the tenant ceased being impacted? Does a landlord need to give a discount for this period? Unsurprisingly, no. Until now, the legislation states that “a lessor is not required to reduce rent for periods when the lessee is not an impacted lessee”.

Yet, on 30 November 2021, a quirk arose – NSW’s Micro-business Grant and JobSaver Payments ceased. This means tenants who had, up to 30 November 2021, qualified for those grants no longer do – the grants don’t exist. This also means these tenants ceased being impacted tenants from 30 November 2021. Therefore, under the current legislation, landlords would not need to reduce rent from 1 December 2021 onwards.

This may seem a bit unfair, and the legislation has just been amended to address this. However, a tenant who meets the turnover threshold and would have qualified for one of the cancelled grants or payments (had they continued) must still be treated as impacted tenants from 1 December 2021. Therefore, during re-negotiations, rent reductions for these tenants should still be available after 1 December 2021.

If you have any questions about these changes or how they may affect you, please speak to us or contact us here.

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 article is accurate at the date it is received or that it will continue to be accurate in the future.

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