The NSW Government has now passed laws affecting retail leases in NSW (see regulation here). This includes a schedule in the Conveyancing Act’s regulations that also applies to commercial leases more generally.
The laws are a bit dense and the following should help unpacking them. To navigate, there are some questions you may have at front of mind. No doubt more to follow.
For the next six months, landlords cannot take enforcement action against JobKeeper-qualifying retail shop tenants for not paying rent or not trading, with mirror provisions for commercial leases more generally.
If a landlord wants to ensure that the tenant pays some rent, the landlord needs to engage in good faith negotiations with the tenant to agree a rent reduction. Once done, the tenant becomes liable, with broadly usual consequences, for not paying the reduced amount in accordance with the lease.
Of the reduced portion, at least 50 per cent must be waived and the balance repaid over at least 24 months.
When does the legislation begin and end?
It runs for six months, beginning on 24 April 2020 and automatically ending on 23 October 2020, unless amended.
Which leases does the legislation apply to?
The legislation applies to most “retail shop leases”, that is leases for retail shops falling under the Retail Leases Act. It also applies to commercial leases – or leases of land for commercial purposes – as defined in a new provision of the Conveyancing Act’s regulation.
The legislation does not apply to:
What about 11 May 2020 recall of parliament?
The 11 May 2020 NSW parliamentary recall may be an occasion for some fine-tuning.
What tenants do the laws apply to?
The laws only to “impacted lessees”. These are tenants under relevant leases (described above) who satisfying the following:
Regarding turnover itself:
What breaches does the legislation apply to?
The legislation only applies to particular breaches, including:
What is the landlord unable to do?
Subject to some exceptions below, if one of the above breaches occurs and the tenant is an impacted lessee, the landlord cannot:
Essentially, enforcement is prohibited.
What other restrictions are placed on a landlord?
The legislation also:
Some exceptions – can a landlord insist on any amounts being paid?
Landlords may well worry. If a tenant is not paying rent, the landlord’s own obligations to financiers, investors, employees, etc. may become affected. The legislation endeavours to address this:
If rent is renegotiated and reduced, but the tenant does not pay the reduced amount (and is not subject to a waiver and deferral), can the landlord take action?
The wording of the law is not as precise as it might be. However, the answer seems to be yes – a landlord can claim this rent and take action for a breach. But this would only be for the portion of the rent that is not reduced by the waiver or deferral. And any dispute must be referred to the tenancy tribunal, NCAT, or a court.
For example, if rent was $100 a month and reduced in a good faith negotiation to $60 a month:
What if the tenant’s breach has nothing to do with COVID-19?
The landlord can take action for this breach. This is important because a landlord can:
Can a landlord just sit out the six months and then claim the rent that would have been payable during COVID-19?
No. It seems difficult to read the laws this way (see ‘teething problems’ section below).
The laws do not oblige a tenant to provide financial information as part of any good faith negotiation. However, it may be ‘bad faith’ not to do so. Landlords would not, in our opinion, be acting in bad faith in requesting financial information to show how COVID-19 has impacted a tenancy, and such requests will be commonplace.
Also, if a tenant was permitted to trade during COVID-19 but chose not to, this will need weighing in any negotiation. For example, a landlord may be entitled to apportion an amount of turnover a tenant would have earned had it traded.
Any agreements on responding to COVID-19, including reductions in rent, etc., should be properly, even if briefly, documented. This would importantly include terms such as:
Like other COVID-19 laws, legislating on the run has difficulties. This legislation lacks some clarity that may come to be tested.
In the meantime – or at least initially – prudence is recommended. Here are some issues to note:
We will continue to monitor for updates.
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 newsletter is accurate at the date it is received or that it will continue to be accurate in the future.
Published by Bede Haines