The Retail and Other Commercial Leases (COVID-19) Amendment Regulation 2020 (NSW) (the Amendment) commenced on 3 July 2020 and changes some of the rules affecting retail/commercial landlords and tenants when it comes to the impact of COVID-19.
Background
The Retail and Other Commercial Leases (COVID-19) Regulation 2020 (NSW) (the Regulation) commenced operation on 24 April 2020. The Regulation gave effect to the National Cabinet Mandatory Code of Conduct for Commercial Leases (the Code).
Key aspects of the Regulation include:
- an “impacted lessee” (that is, a tenant under a retail or commercial lease in NSW who qualifies for JobKeeper and has turnover of less than $50 million for FY18/19) is, amongst other things, entitled to re-negotiate the rent payable under their lease
- a landlord 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” (ie, a period of 6 months commencing on 24 April 2020)
- any rent negotiations must be conducted in good faith having regard to the leasing principles set out in the Code which includes:
- rent reductions must be proportionate to the reduction in the tenant’s trade during the COVID-19 period
- rent reductions must be in the form of waivers and deferrals – waivers must be a minimum of 50% of the total rent reduction and could be as high as 100% of the total rent reduction (although regard must be had to the financial capacity of the landlord to provide additional waivers above 50%)
- any deferred rent must be repaid over the balance of the lease term or 24 months (whichever is greater)
- the landlord cannot take any action (such as seeking to recover possession of the premises, terminating the lease or exercising or enforcing its rights under the lease through legal proceedings) unless and until the parties have attempted mediation
- any court or tribunal hearing a dispute over these matters must have regard to the leasing principles set out in the Code
New Changes
The Amendment clarifies that the onus is on the tenant to prove that they are an “impacted lessee” and they must provide the following information to the landlord:
- a statement to the effect that the tenant is an impacted lessee
- evidence that the tenant is in fact an impacted lessee
If the tenant does not comply with these requirements, the landlord is permitted to take “prescribed action” against the tenant.
The Amendment applies to any ongoing negotiations between landlords and tenants under the Regulation, but it does not apply to any concluded negotiations or to any matters for which proceedings have already commenced in a court or tribunal.
Unresolved Questions
The Amendment has unfortunately not clarified a number of other issues though including:
- what form of evidence is satisfactory to prove that a tenant is an “impacted lessee”?
- does the Regulation apply to rental arrears incurred prior to the commencement of the “prescribed period” (eg, rental arrears incurred in March due to COVID-19)?
- is the landlord absolutely prohibited from taking any “prescribed action” during the “prescribed period”, or is a landlord permitted to take such action provided it has attempted mediation?
At the time of writing this article there have been no published court or tribunal decisions regarding the application of the Regulation, thus landlords and tenants await clarification through further legislative change and/or relevant court/tribunal decisions.
More Information
Please contact our commercial law team at Matthews Folbigg Lawyers on 9635 7966 if you would like advice or assistance in respect of your rights and obligations arising from COVID-19 or any other matter relating to your business.
DISCLAIMER: This article is provided to readers for their general information and on a complimentary basis. It contains a brief summary only and should not be relied upon or used as a definitive or complete statement of the relevant law.
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