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New COVID-19 leasing laws affecting NSW retail and commercial tenancies during lockdown

15 July 2021

#Property, Planning & Development, #COVID-19

New COVID-19 leasing laws affecting NSW retail and commercial tenancies during lockdown

New NSW COVID-19 retail and commercial leasing laws now apply, tying in with NSW’s economic support package.

The laws, which commenced on 14 July 2021, restrain landlord action for some breaches until 20 August 2021. The new legislation – Retail and Other Commercial Leases (COVID-19) Regulation 2021 – applies in addition to the face mask, gathering and movement restrictions, self-isolation requirements and essential worker health orders. The health orders have already begun impacting the business of retail and commercial leasing, particularly for shopping centres, food and hospitality.

What landlords can’t do

The new retail and commercial leasing laws:

  • apply to retail and commercial leases, if entered before 26 June 2021
  • impose a “prescribed period” from 13 July 2021 until 20 August 2021
  • give protection to “impacted lessees”. A tenant is considered an impacted lessee if the tenant:
    • qualify for the new government protection measures (Micro-business COVID-19 Support Grant, COVID-19 NSW Business Grant, or Job Saver Grant); and
    • had a turnover of less than $50 million in FY20-21 (as with the last COVID-19 laws, turnover includes group turnover and internet sales).

Before a landlord can take a “prescribed action” for a “prescribed breach” during the “prescribed period” against an “impacted tenant”, the parties must mediate with the Small Business Commissioner. Some elaboration:

  • a “prescribed breach” is a tenant not paying rent or outgoings, or not trading, between 13 July 2021 and 20 August 2021
  • the laws do not prevent a prescribed action from ever being taken. Instead, mediation is first required. Practically, this means any landlord recourse will is likely some months away – convening mediations takes time
  • landlords are not obliged to apply for a waiver or deferral process, as occurred during 2020. This may yet be introduced, but is not presently in place
  • the laws also place more responsibility on tenants – a tenant is obliged to provide landlords with information showing they are impacted lessees. The 2020 laws made this difficult to extract, and there remain (in our experience) some residual tenancy disputes over whether tenants qualified under the 2020 laws. Hopefully, the duty being placed on tenants can avoid this problem. Disputes over a tenant’s status ultimately assist neither the landlord nor the tenant.

Some considerations and qualifications

  • The laws expressly allow landlords and tenants to agree on how the tenancy will operate until 20 August 2021. The agreement can allow landlords to take prescribed actions without needing to mediate.
  • Reaching agreements may offer commercial benefit. If landlords forego, or defer payment of, some rent in return for a deal on what the tenant will pay until 20 August 2021, goodwill may build, with parties understanding how the lease will operate during the prescribed period. Certainty has value, avoiding time and costs with mediation.
  • The purpose of the laws is not wholly clear. Landlords cannot terminate for arrears, or tenants not trading, between 13 July 2021 and 20 August 2021. But tenants are not absolved of having to pay rent either. Instead, before taking action, mediation is required. What then can mediation achieve? The last COVID-19 laws pushed parties to agree on deferrals and waivers – these laws do not. It seems the government wants tenants to access the government’s relief package, while not forcing landlords to waive rent. Instead, landlords must jump a hurdle – mediation. It’s almost like the government hopes parties will agree on something, without being told what – a nudge. This is another reason why an agreement may be worthwhile.
  • The laws do not mention the Commonwealth’s 2020 leasing Code of Conduct. It may be the government sees the lockdown as short term, and hopes its relief package will tide tenants over.

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.

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