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Impacts for Commercial Leases & Commercial Contracts

COVID-19 – Impacts for Commercial Leases & Commercial Contracts

Commercial Leases

The Retail and Other Commercial Leases (COVID-19) Regulation 2020 (NSW) (the Regulation) commenced on 24 April 2020.  The purpose of this Regulation is to give effect to the National Cabinet Mandatory Code of Conduct for Commercial Leases (the Code) which was announced by the National Cabinet on 7 April 2020.

Key aspects of the Regulation include:

  • the Regulation applies to both retail leases and commercial leases
  • to qualify for relief, the tenant must be an “impacted lessee” – that is, they qualify for the JobKeeper program and have turnover of less than $50 million for the 2018-2019 financial year
  • a landlord cannot take any of the “prescribed actions” against an impacted lessee (such as evicting the tenant, terminating the lease, re-entering the premises, or calling on a security bond or guarantee given by the tenant) due to non-payment of rent or outgoings during the “prescribed period” (ie, 6 months after the commencement date of the Regulation which is 24 April 2020)
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COVID-19 – What do Force Majeure and Frustration mean for contracts?

Due to the economic downturn caused by COVID-19,  Matthews Folbigg Lawyers has been receiving a lot of enquiries from clients seeking advice in relation to contracts with a view to either getting out of their contracts or alternatively, seeking to enforce their contracts.

Two relevant legal concepts in this landscape are force majeure and frustration.

Force Majeure

Force majeure is a French term meaning “superior force”.

Many contracts contain a force majeure clause, the key features being:

  • a set of defined events referred to as an “event of force majeure” – this could include war, terrorism or natural disasters, but could also include events relevant to COVID-19, such as epidemic, pandemic, or acts or restraints by government authorities

 

  • typically, the force majeure clause will provide that where a force majeure event is preventing, restricting or delaying performance under the contract, the parties that are affected by the force majeure event will be excused from performing under the contract for the duration of the force majeure event
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Code of Conduct for Commercial Tenancies – Released

By Anica Cunanan, Law Clerk at Matthews Folbigg Lawyers

Undeniably, the financial impact of COVID-19 has triggered a myriad of changes to the laws. The National Cabinet has released a mandatory Code of Conduct in relation to the commercial property sector. This sets out the principles to be applied to adjustments to rent during the COVID-19 pandemic.

The Code is based upon a series of good faith principles to be applied to commercial tenancies during this unprecedented time. It will apply to those tenants who are eligible for the JobKeeper programme, with annual turnover of up to $50 million (“SME Tenants”).

The Code of Conduct includes the following:

  • Landlords should not terminate due to non-payment of rent during the COVID-19 pandemic period;
  • Proportionality to rent reductions based on the tenant’s decline of turnover;
  • ‘Tailored’ and ‘bespoke’ solutions to be negotiates between landlords and SME Tenants; and
  • A mix of at least 50% waivers and the balance of deferrals in respect of rent obligations.
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Critical Covid Response Items for EVERY Business and Employer

COVID-19

Critical Covid Response Items for EVERY Business and Employer

Business Contracts and Leases

Key questions to ask yourself in an effort to reduce losses being suffered:

  • can I use contractual and leasing force majeure provisions due to events beyond my reasonable control to cancel, suspend or renegotiate my contracts and leases?
  • what happens if I don’t have a force majeure provision?
  • can I use the “frustrated contracts” regime to my advantage?
  • is Covid a “material adverse event” for contractual purposes?
  • what time limits apply to exercise my rights and are there any mandatory procedural requirements I must follow to do so?

As the interaction between contractual wording, legal considerations, and the outcome sought are inherently fact specific, if you would like to discuss your options we invite you to contact a member of our Commercial Law Team on 9635 7966.

Staff

Does your contingency planning take into account these fundamental matters:

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ALERT: COVID-19 Impact on Working Holiday Visa Holders

Questions

Are you:

 

  • on a Working Holiday visa subclass 462 that is about to expire?

 

  • worried about the pandemic crisis preventing you from returning home?

 

New Rules

The Australian Government has recently announced changes to its policy which allows visa subclass 462 holders to extend their stay if they have completed either 3 months or 6 months of volunteer or paid bushfire recovery work in specified areas of Australia, including:

 

  • construction, farming, or any other work in association with the recovery of land, property and animals

 

  • providing support services or assistance to people in affected areas

 

Finer Details

The bushfire recovery work must have commenced after 31 July 2019 to be considered as ‘specified work’ towards eligibility for a second or third 462 visa.

Furthermore, from 17 February 2020, Working Holiday makers assisting in bushfire recovery efforts can now undertake paid or unpaid work for up to 12 months (instead of 6 months) with the same employer without permission from the Federal Government.
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COVID-19: Critical Matters for Commercial & Retail Tenants and Landlords

New Laws

The NSW Government now has the power to set new rules for retail landlords and tenants, the details of which will be known in coming days.

Although the new laws (currently) only relate to retail leases, nevertheless there are substantial challenges for both commercial and retail tenants and landlords to consider as set out below arising from the COVID-19 situation.

 

What is expected?

For retail tenants and landlords it is expected that the new laws will address such matters as evictions, bank guarantees/bonds, tenant defaults, rent abatements, and mandatory/core trading hours.

Caution must therefore be exercised when purporting to rely upon a lease term as it may be modified or prohibited under the new regime.

 

What about force majeure and rent abatement clauses?

Contractual force majeure provisions (ie, events beyond the reasonable control of a party) and rent abatement clauses will have important significance and need to be carefully considered in terms of the rights, remedies and obligations they create for both landlords and tenants.
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Social Media – Be On High Alert As To The Risks!

An important decision was handed down in 2019 by the New South Wales Supreme Court in Voller v Nationwide News Pty Ltd (and others) which is highly relevant to any business which uses social media to promote its activities.

In essence:

  • the matter concerned Dylan Voller, a young man who was featured in an ABC Four Corners story on abuse in youth detention centres
  • subsequent articles written about Voller were posted on the public Facebook pages of media companies News Corporation and Fairfax
  • Facebook users were allowed to post comments under the articles on Facebook, and Voller successfully pleaded that the users’ comments were defamatory
  • the Court held the media companies were the “publishers” of the comments and therefore responsible for any defamatory imputations contained in them even though they were not the authors of the comments
  • the Court held the media companies were liable because they knew, or ought to have known, that defamatory comments were being posted, and they did not remove the comments even though they had the power to moderate their public pages by deleting user comments
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Excessive Surcharge Laws – Beware!

Does your business charge consumers a surcharge for processing credit and debit card payments?

If so, changes to the Competition and Consumer Act in 2016 mean companies are prohibited from charging customers excessive payment surcharges if:

  • it relates to a payment method covered by the Reserve Bank standard or regulations (this includes EFTPOS, Visa, MasterCard and Amex cards issued by an Australian financial service provider); and
  • the amount of the payment surcharge exceeds the permitted amount in the Reserve Bank standard or regulations (which generally must be no greater than the cost to the business of processing the payment)

2019 saw the first litigation brought by the ACCC under these laws. Previously it had dealt with contraventions by issuing infringement notices.

In the Federal Court case ACCC v CLA Trading Pty Ltd (trading as Europcar):

  • Europcar admitted to breaching the excessive surcharge laws in relation to 63,012 customers
  • although the amount over-charged was $67,215.59 (amounting to slightly more than $1 overcharged per customer), Europcar was ordered to pay a $350,000 penalty to the ACCC in addition to refunding the affected customers
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