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Mandatory Code of Conduct for Commercial Leasing

NSW Government re-introduces the National Cabinet’s Mandatory Code of Conduct for Commercial Leasing

On 13 August 2021, the NSW Gov­ern­ment announced it will rein­tro­duce the Nation­al Cabinet’s Manda­to­ry Code of Con­duct for Com­mer­cial Leas­ing man­dat­ing rent relief for eligible ten­ants impact­ed by Covid-19.

The Retail and Oth­er Commer­cial Leas­es (Covid-19) Reg­u­la­tion 2021:

  • will be extended until 13 January 2022 (previously due to expire on 20 August 2021)
  • requires the lessor to renegotiate the impacted lease with the lessee in accordance to the principles set out in the National Code of Conduct. The Code of Conduct requires landlords to provide rent relief in proportion with their tenant’s decline in turnover. At least 50 per cent of the rent relief must be in the form a waiver, and the balance a deferral.
  • prevents a land­lord from evict­ing or lock­ing out a ten­ant for cer­tain breach­es unless they have first rene­go­ti­at­ed rent and attempt­ed mediation.

The Reg­u­la­tion will apply to com­mer­cial and retail ten­ants with a turnover of up to $50 million who are impacted lessees, that is, they qualify for the COVID-19 Microbusiness grant, COVID-19 Business Grant or JobSaver Payment.
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COVID-19 Contracts and Frustration

Contracts and Frustration by COVID-19- Important decision  

Recently, the New South Wales Supreme Court (NSWSC) in Dyco Hotels Pty Ltd v Laundy Hotels (Quarry) Pty Ltddecided that a contract for sale was not frustrated by pandemic trading restrictions.

Lockdown and trading restrictions imposed by the government in response to COVID-19 has inevitably given rise to parties in sale contracts to claim frustration when a business or commercial venture is impacted. In order for a contract to be frustrated, the frustrating event must give rise to a “fundamental commercial difference” between contemplated and actual performance or to a “fundamentally different situation” arising for which the parties made no provision “so much so that it would not be just in the new situation to hold them bound to its terms” (Davis Contractors Ltd v Fareham Urban District Council [1956] AC 696 at [64]).

Background             

Very briefly, the parties entered into a contract for the sale of a freehold hotel property in Pyrmont together with a hotel licence, gaming machine entitlements and hotel business.
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Frustrated Leases

Frustrated leases – Important recent case for Landlords and Tenants

Recently, the New South Wales Supreme Court (NSWSC) in Gazcorp Pty Ltd v Woolworths Ltd [2021] NSWSC 308 demonstrated that whether a lease is frustrated by changes in planning laws or approvals should be carefully considered in each case.

Until Gazcorp v Woolworths, the courts had generally only declared in dictum that the doctrine of frustration applies to leases as it does contracts (Tim Barr Pty Ltd v Narui Gold Coast Pty Ltd; Willmott Forests Ltd (rec and mgrs. Apptd) (2012) 91 ASCR 182 at [41]).

Background

Briefly, between 2004 and 2008, the owner (Gazcorp) of land suitable for development held negotiations with a potential lessee (Woolworths) about a lease space in the proposed development. In 2008, Gazcorp entered into an agreement for a lease with Woolworths which was varied a few months later. The parties disagreed as to the extent of the variation. Gazcorp alleged that the agreement for lease was varied to include Big W in addition to Woolworths. Woolworths claimed that the variation was only in relation to some dates and not the inclusion of a Big W store.
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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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GREATER SYDNEY’S 2021 LOCKDOWN: WILL BUSINESSES SINK OR SWIM?

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.