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COVID-19 | Retail and Oth­er Com­mer­cial Leas­es (COVID-19) Reg­u­la­tion 2020

On 7 April 2020, the Nation­al Cab­i­net adopt­ed the Nation­al Cab­i­net Manda­to­ry Code of Con­duct – SME Com­mer­cial Leas­ing Prin­ci­ples dur­ing COVID-19 (Code). The Code con­tem­plat­ed that it would be giv­en effect through rel­e­vant State and Ter­ri­to­ry leg­is­la­tion or regulation. 

New South Wales has now passed the Retail and Oth­er Com­mer­cial Leas­es (COVID-19) Reg­u­la­tion 2020 (Reg­u­la­tion) to imple­ment the Code’s intent. A sep­a­rate reg­u­la­tion applies for retail leas­es and for commercial/​industrial leas­es, but there are no mate­r­i­al dif­fer­ences between the 2 regulations. 

Below is a sum­ma­ry of the Regulation.

What does it do?

The object of the Reg­u­la­tion is to give effect to the Code and par­tic­u­lar­ly to:

  • pro­hib­it and reg­u­late the usu­al enforce­ment rights of land­lords dur­ing the COVID-19 pan­dem­ic peri­od; and
  • require land­lords and ten­ants to rene­go­ti­ate the rent and oth­er terms of retail, com­mer­cial and indus­tri­al leas­es in good faith hav­ing regard to the Code before any enforce­ment action can be commenced.

Yes – It is an adop­tion of the Code

Inter­est­ing­ly, although the Reg­u­la­tion adds speci­fici­ty (beyond what was stat­ed as gen­er­al prin­ci­ples in the Code) to things such as the restric­tion on enforce­ment rights of land­lords and the dis­pute res­o­lu­tion process, with respect to rent relief noth­ing of sub­stance was added to put any gloss on the Code. In the rene­go­ti­a­tion of rent payable under a lease that is cap­tured by the Reg­u­la­tion, the par­ties must have regard to the eco­nom­ic impacts of the COVID-19 pan­dem­ic’ and the leas­ing prin­ci­ples set out in the Nation­al Code of Conduct’.

When does it apply?

The Reg­u­la­tion takes effect on 24 April 2020 and is repealed auto­mat­i­cal­ly on 24 Octo­ber 2020 (being 6 months after it com­menced) (Pre­scribed Peri­od).

The Reg­u­la­tion applies to the exer­cise or enforce­ment of rights under affect­ed leas­es (described below) in rela­tion to cir­cum­stances occur­ring dur­ing the Pre­scribed Period.

What leas­es does the Reg­u­la­tion affect?

A retail lease or a commercial/​industrial lease entered into:

  • before the com­mence­ment of the Regulation
  • after the com­mence­ment of the Reg­u­la­tion where it results from the exer­cise of an option to renew an exist­ing lease.

What ten­ants does the Reg­u­la­tion affect?

The Reg­u­la­tion applies to ten­ants (Impact­ed Ten­ants) under any of the above leas­es if:

  • the ten­ant qual­i­fies for the Job-Keep­er scheme; and
  • the turnover of the ten­ant was less than $50 mil­lion in the 2018 – 2019 finan­cial year and:
    • if the ten­ant is a fran­chisee, it is the turnover of the busi­ness con­duct­ed at the actu­al leased premises
    • if the ten­ant is a cor­po­rate group, it is the turnover of the group.

What pro­hi­bi­tions and restric­tions apply?

Where the ten­ant is an Impact­ed Tenant:

  • A land­lord must not take any Pre­scribed Action (described below) against an Impact­ed Ten­ant in rela­tion to cir­cum­stances occur­ring dur­ing the Pre­scribed Peri­od for:
    • fail­ure to pay rent
    • fail­ure to pay outgoings
    • not being open dur­ing the trad­ing hours in the lease
  • A land­lord must not increase the rent (oth­er than turnover rent) dur­ing the Pre­scribed Peri­od (and must not take action for any fail­ure to pay a rent increase which would have oth­er­wise applied).
  • If an Impact­ed Ten­ant is specif­i­cal­ly required to pay or reim­burse the land­lord for land tax, statu­to­ry charges or insur­ance (Tax­es and Charges), then a land­lord must pass on the appro­pri­ate pro­por­tion of any reduc­tion the land­lord receives in Tax­es and Charges to the Impact­ed Tenant. 
  • Any­thing an Impact­ed Ten­ant is required to do or not do under Com­mon­wealth or State COVID-19 pan­dem­ic laws does not con­sti­tute a breach of a lease and does not allow Pre­scribed Action to be tak­en by a landlord.
  • None of the above pre­vents a land­lord and an Impact­ed Ten­ant agree­ing to Pre­scribed Action being taken.

What a land­lord can­not do?

A land­lord must not take action under a lease, seek orders or com­mence pro­ceed­ings for any of the usu­al enforce­ment actions. These pro­hi­bi­tions (Pre­scribed Action) are:

  • Ter­mi­na­tion type actions- ter­mi­na­tion of a lease, re-entry and recov­er­ing pos­ses­sion or evic­tion of an Impact­ed Tenant
  • Claim on secu­ri­ty – recov­ery under a bank guar­an­tee or secu­ri­ty bond, or claim­ing under any oth­er guarantee
  • Seiz­ing goods - seiz­ing or for­feit­ing of goods of an Impact­ed Tenant
  • Inter­est - charg­ing inter­est or oth­er fees for unpaid rent
  • Dam­ages claim — a claim for dam­ages against an Impact­ed Tenant
  • Oth­er (Catch all) — any oth­er rem­e­dy oth­er­wise avail­able to a land­lord at law

Oblig­a­tion to renegotiate

In any case where a Pre­scribed Action might be able to be tak­en against an Impact­ed Ten­ant for non-pay­ment of rent dur­ing the Pre­scribed Peri­od, a land­lord must first com­ply with the following:

  • rene­go­ti­ate the rent payable under the lease if request­ed by the Impact­ed Ten­ant or ini­ti­at­ed by the landlord
  • con­duct the rene­go­ti­a­tion in rela­tion to the rent and oth­er terms of the lease in good faith hav­ing regard to:
    • the eco­nom­ic impacts of the COVID-19 pan­dem­ic; and
    • leas­ing prin­ci­ples set out in the Code. 

Dis­pute res­o­lu­tion under both retail and commercial/​industrial leases

The dis­pute res­o­lu­tion process in part 8 of the Retail Leas­es Act 1994 (NSW) applies to commercial/​industrial leas­es. There­fore, unless the amount in dis­pute is greater than $750,000, NSW Civ­il and Admin­is­tra­tive Tri­bunal is the tri­bunal with jurisdiction.

There­fore, for both a retail lease and a commercial/​industrial lease, a land­lord must obtain cer­ti­fi­ca­tion from the Small Busi­ness Com­mis­sion­er that medi­a­tion has been con­duct­ed and has failed before a land­lord can:

  • seek to recov­er pos­ses­sion of premis­es or land
  • ter­mi­nate the lease
  • exer­cise or enforce any oth­er right under the lease.

What about non COVID-19 pan­dem­ic relat­ed breaches?

A land­lord is not pre­vent­ed from tak­ing a Pre­scribed Action against an Impact­ed Ten­ant on grounds not relat­ed to the eco­nom­ic impacts of the COVID-19 pandemic.

In a prac­ti­cal sense, this means that if the ten­ant was in arrears for a peri­od before the Reg­u­la­tion took effect (ie pre-April 2020 arrears) or was in breach of some oth­er oblig­a­tion before the Reg­u­la­tion took effect, the land­lord can pur­sue its rights in the usu­al way. There­fore, the land­lord (if it choos­es) can re-enter and ter­mi­nate the lease if the ten­ant does not rec­ti­fy a pre-COVID-19 pan­dem­ic breach.

How can we help you?

For more of our COVID-19 prop­er­ty law alerts, updates and pub­li­ca­tions or to make an online enquiry please click here and we will respond to you as a mat­ter of urgency. Alter­na­tive­ly just call us on +61 2 9233 5544.

Kind regards

The Swaab prop­er­ty team

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