In response to the growing pressures on businesses due to the COVID-19 lockdown, New South Wales has re-introduced the COVID-19 rent relief scheme for retail and commercial tenants.
This new NSW scheme operates in essentially the same way as the first scheme that was introduced in April in 2020 in respect of retail and commercial leases.
Victoria has passed enabling legislation for another rent relief scheme for retail and commercial tenants. However, the specific details about how this new scheme will operate will be in the Regulations, which have not been published. As of the date of this update, no other State or Territory has announced any new rent relief arrangements.
13 July 2021 to 13 January 2022 is the Prescribed Period
The Retail and Other Commercial Leases (COVID-19) Amendment Regulation 2021 (NSW) (2021 Regulation) operates from 13 July 2021 to 13 January 2022, called the ‘Prescribed Period’, in connection with leases that were entered into before 26 June 2021.
Applicable to an Impacted Lessee
The Regulation applies to an ‘Impacted Lessee’, being a tenant that:
- qualifies for one or more of the following grants: 2021 COVID-19 Micro-Business Grant, 2021 COVID-19 Business Grant and/or 2021 JobSaver Payment (each of which requires a 30% decline in turnover); and
- has a turnover of less than $50 million for the 2020/2021 financial year, inclusive of any online sales.
- First — A landlord must not terminate a lease, call on a bank guarantee or take any other usual enforcement measures during the Prescribed Period as a consequence of non-payment of rent or outgoings or for not opening during the trading hours in the lease (unless it is a breach that occurred before the Prescribed Period).
- Second — The Regulation requires the rent to be renegotiated by taking into consideration the economic impacts of the COVID-19 pandemic and the leasing principles from the National Cabinet Mandatory Code of Conduct – SME Commercial Leasing Principles during COVID-19 (Code). The relevant requirement under the Code to give the tenant rent relief in proportion with the tenant’s decline in turnover.
If the tenant is part of a group of companies, the turnover of the group is applicable. If the tenant is a franchisee, the turnover of the business conducted at the particular premises is the relevant turnover.
The Key Features
As in the case of the 2020 Regulation, this new 2021 Regulation has 2 essential features, being:
The landlord and the tenant must commence the negotiation of the rent relief in good faith within 14 days of the tenant’s request.
Rent waiver and deferral
A rent waiver must be given for at least 50% of the total reduction of rent, and a rent deferral applies to the balance. The rent deferral component is set out in the Code, which requires the repayment of any rent deferral component to be amortised over the balance of the lease term or for a period of not less than 24 months, whichever is the greater. This deferred payment régime can only commence after the end of the Prescribed Period, which is 13 January 2022.
The press releases for the new Victorian scheme suggest that any current rent deferral payments that result from the previous scheme will be frozen at the option of the tenant until the end of the new scheme (15 January 2022), and added to any rent deferred under the new scheme. This is not specifically dealt with in the NSW Regulation and therefore the presumption is that the existing deferral payments continue.
Another aspect that is not absolutely clear is the applicable comparison period to assess the tenant’s reduction in turnover. In the case of the first scheme (introduced in 2020), the comparison was to a pre-pandemic period, as the tenant’s turnover was compared with the same month in 2019.
It is reasonable to take guidance from the eligibility criteria for the 2021 JobSaver Payment. A business is eligible for the JobSaver Payment if from 26 June 2021 it experienced a decline in turnover of 30% or more over a 2 week period as compared to: (1) the same period in 2019; (2) the same period in 2020; or (3) the 2‑week period immediately before lockdown commenced (being 12 to 25 June 2021). There is a certain logic to comparing August 2021 with either August 2020 or August 2019.
The dispute resolution process in part 8 of the Retail Leases Act 1994 (NSW) applies to disputes regarding a relevant breach of a lease during the Prescribed Period, being non-payment of rent or outgoings or not opening for business during the hours required by the lease.
How can we help you?
Please call or email us if you have any questions or require assistance with the application of this scheme.
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The Swaab property team