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NSW: Land Tax Relief and new COVID-19 Leasing Regulations

The NSW Government has reintroduced COVID-19 leasing regulations and announced new land tax concessions for landlords who provide rent relief to eligible tenants.

Land Tax Relief

Landlords who provide rent relief (ie, a waiver not a deferral of rent) to eligible tenants between 1 July 2021 – 31 December 2021 will be entitled to a reduction in their land tax payable for the 2021 land tax year.

The amount of the land tax reduction will be the lesser of:

  • the amount of rent reduction provided to an eligible tenant for any period between 1 July 2021 and 31 December 2021; or
  • 100% of the land tax attributable to the parcel of land leased to that tenant.

To be “eligible” the tenant must

  • occupy land in NSW under a retail or commercial lease;
  • have an annual turnover for the 2020–2021 financial year of less than $50 million (including the turnover of any corporate group which the tenant is a member of); and
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By Anica Cunanan, Solicitor at Matthews Folbigg in the Insolvency, Restructuring and Debt Recovery Group

Greater Sydney is currently in a lockdown and has remained in the dark with respect to whether, and when businesses would receive some relief.

Last year, the Federal Government introduced the JobKeeper scheme to assist with keeping businesses afloat (including employees within those businesses) through of the payment of wage subsidies subject to certain criteria.

The Morrison and Berejiklian Governments have announced that NSW businesses will finally receive some relief as we enter the fourth week of lockdown in NSW. It is evident that regardless of whether lockdown is in fact extended past 30 July 2021, businesses have already experienced a substantial hit. Should lockdown continue to be extended, we may see plenty of businesses struggling to make it through this lockdown.

On 13 July 2021, The Premier, Treasurer released some information regarding the new NSW COVID-19 support package, including the following:
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Terms of Trade – New Disclosure Obligations for NSW Businesses

NSW businesses must ensure they comply with the mandatory disclosure obligations in respect of their terms of trade.

The new section 47A of the Fair Trading Act 1987 (NSW) commenced operation on 1 July 2020 and, in essence, this requires NSW businesses to:

  • take reasonable steps to ensure that consumers are aware of the substance and effect of any terms or conditions relating to the supply of goods or services which may substantially prejudice the interests of the consumer
  • make this disclosure to consumers before the goods or services are supplied to the consumer

Examples of terms or conditions which “substantially prejudice” the interests of the consumer include but are not limited to:

  • terms which exclude the liability of the supplier
  • terms which impose a liability on the consumer for damage to goods which occurred prior to delivery
  • terms allowing the supplier to provide personally identifiable information about that consumer to third parties
  • exit fees, balloon payments and other similar payments which accrue upon the expiry or termination of an agreement
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Terms of Trade – Beware of Unlawful Unfair Contract Terms

The Federal Government has announced its intention to expand the scope of the unfair contract terms regime in the Australian Consumer Law.

To recap, a term in a “consumer contract” or “small business contract” (as defined in the Australian Consumer Law) is unfair if it meets all of the following:

  • it would cause a significant imbalance in the rights and obligations of the parties under the contract
  • it is not reasonably necessary to protect the legitimate interests of the party who would be advantaged by the term
  • it would cause detriment (financial or otherwise) to a party if the term were to be applied or relied on

The Australian Consumer Law lists examples of unfair contract terms, such as a term which allows one party (but not the other party) to terminate the contract.

The planned changes include:

  • making unfair contract terms unlawful and not merely voidable, thereby giving rise to penalties for businesses which include unfair contract terms in their standard form contracts (eg, in their terms of trade)
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Businesses – Greater Exposure to Liability

The liability of a business for a consumer transaction (which can include business-to-business transactions) under the Australian Consumer Law will increase to $100,000 (up from $40,000).

This means that a broader range of commercial transactions will be afforded the protections of the “consumer guarantees” in the Australian Consumer Law which include amongst other things:

  • goods must be of acceptable quality and fit for any disclosed purpose
  • goods must match any description, sample or model
  • services must be performed with due care and skill
  • services must be supplied within a reasonable time

If a consumer guarantee is breached then, depending on the nature and severity of the breach, the consumer (which may include a business customer) may be entitled to:

  • the repair, replacement or re-supply of the goods or services
  • a refund
  • termination of the contract for the supply of services
  • compensatory damages

The consumer guarantees and remedies cannot be excluded by contract.

Action Item

Businesses must review and update their terms of trade to ensure they are compliant with the consumer guarantees and remedies available under the Australian Consumer Law.

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Leasing – NSW COVID-19 Protections Extended

The NSW COVID-19 leasing regulations have been extended until 28 March 2021, albeit with some qualifications.

The Retail and Other Commercial Leases (COVID-19) Regulation (No. 3) 2020 (NSW) (Regulation) commenced on 1 January 2021. The effect of the Regulation is to extend the “prescribed period” to 28 March 2021.

Amongst other things:

  • a landlord under an “impacted lease” cannot take any “prescribed action” against an “impacted lessee” (such as eviction, termination of the lease, or calling on any security provided by the tenant) due to non-payment of rent or outgoings during the “prescribed period
  • an impacted lessee has the right to re-negotiate their rent payable under an impacted lease, and the rent cannot be increased during the prescribed period (unless it is rent determined by reference to turnover)

However, the new Regulation has significantly narrowed the scope of these protections for tenants as:

  • the Regulation only applies to retail leases and not commercial leases – previous versions of the regulation applied to both
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Directors – Director ID Numbers are Coming

Company directors will be required to apply for a director identification number under changes to the Corporations Act.

The Treasury Laws Amendment (Registries Modernisation and Other Measures) Act 2020 (Cth) was enacted on 22 June 2020 and amends the Corporations Act 2001 (Cth) by implementing a system of director identification numbers (similar to ACN’s for companies).

Under the current system, companies supply personal information about their directors (such as their full name, date of birth, place of birth and residential address) to ASIC when those persons are appointed as directors.

A number of deficiencies have been identified with the current system including:

  • ASIC does not vet the information supplied by companies
  • although companies are required to have a signed consent to act form from each director, ASIC does not check this either, so a “dummy director” could be unwittingly or dishonestly registered as a director of a company
  • the personal information of directors (including their residential addresses) is publicly available on the ASIC register, creating risks in terms of personal safety, identity fraud and privacy
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Don’t Go Chasing Waterfalls – COVID-19 Safe Harbour is (still) not Safe

The temporary safe harbour protection from director liability for insolvent trading expires on 31 December 2020. However the Government has not corrected a critical timing issue which exists in the COVD-19 safe harbour legislation. This means directors must appoint an external administrator to their company on or before 31 December 2020, if they wish to take advantage of the COVID-19 safe harbour protection from insolvent trading .

The temporary protection is found in section 588GAAA of the Corporations Act 2001 (Cth). There has been some recent debate about whether the words “before any appointment during that period” of an external administrator, mean what they appear to say, namely that any appointment must take place “during that period” of the temporary safe harbour expires.

Our Stephen Mullette has recently responded to the alternative view – that an appointment can be delayed until the new year. Unfortunately, the conclusion is that the better view is still that to take advantage of  the safe harbour defence, the directors must have appointed an external administrator before 1 January 2021. You can read the further consideration here, and make up your own mind.
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