Mandated Relief to Tenants in Commercial and Retail Leases – COVID-19

With the NSW lockdowns in place there has been growing concern that Retail and Other Commercial Leases (COVID-19) Regulation 2021 (Regulations) published on 14 July 2021 were insufficient to govern the rights and obligations of a landlord and tenant. The Regulations prevented a landlord from taking a prescribed action against an impacted tenant of a commercial or retail lease for a prescribed breach during the prescribed period (13 July 2021 to 20 August 2021).

Note:

1. Prescriber Action means taking action under the lease terms or seeking orders/issuing proceedings in court or tribunal for any of the following: eviction of the tenant, recovery of the premises, forfeiture, damages, requiring a payment of interest and more.
2. Prescribed Breach means failure to pay rent, outgoings or tenant not being open to operate its business;
3. Impacted Tenant means a tenant which qualifies for at least one of three government grants due to the impact of the pandemic, have had an annual turnover below $50 million in FY 20-21 and provide evidence to their landlord to that effect.

On 13 August 2021 the NSW Government published the Retail and Other Commercial Leases (COVID-19) Amendment Regulation 2021 (Amending Regulations) amending the Regulations.

The key amendments are as follows:

• The prescribed period now ends on 13 January 2021 not 20 August 2021.
• An impacted tenant is now a tenant which is qualifies for 1 or more of the following:
  • COVID-19 Micro-business Grant, COVID-19 Business Grant and JobSaver Payment.

What needs to be highlighted here is that there is no longer a requirement for the tenant to have had an annual turnover below $50 million in FY 20-21.

• A Landlord cannot increase the rent during the prescribed period.
• A party (usually the tenant) to an impacted lease (a commercial/retail lease to which an impacted lessee is a party) may request the other party (usually the landlord) to renegotiate the rent, as well as other terms, payable under the impacted lease. The party which receives the request must renegotiate the rent or other terms of the lease, as applicable.
• When renegotiating the rent the parties must consider the economic impact of COVID-19 pandemic and the leasing principals set out in the National Code of Conduct (National Cabinet Mandatory Code of Conduct—SME Commercial Leasing Principles During COVID-19 adopted on 7 April 2020). This means that the landlord, again, may need to provide rent relief of a 50% rent waiver and a 50% rent deferral equal to the tenant’s downturn in trade as a result of the COVID-19 pandemic.

If you find yourself being party to an impacted lease it is important to understand your rights and obligations under the Regulations and the Amended Regulations. In addition to the above, Revenue NSW is offering Land Tax relief to Landlords, who are the owners of the land the subject of the lease, equal to the rent reductions given to impacted tenants.

Contact our team of expert Commercial Lawyers to assist you navigate any challenges that you, or your business are facing during this difficult period, and we will assist you understand your rights, obligations and responsibilities as prescribed in the Amending Regulations.