Update

The New South Wales Government has re-introduced the Mandatory Code of Conduct for Commercial leasing to eligible tenants impacted by COVID-19 pursuant to the Retail and Other Commercial Leases Regulation (COVID 19) Regulation 2021 (Regulation). The Regulation applies to retail and commercial leases entered into before 26 June 2021, and to options or renewals/extensions of leases entered into after that date but where the original lease was entered into pre 26 June 2021.

Summary of key terms used

Prescribed Period: 13 July 2021 to 13 January 2022.

Impacted Lessee: The lessee must qualify for the 2021 COVID-19 Micro-business Grant, 2021 COVID-19 Business Grant or the 2021 JobSaver Payment and have a 2020-2021 turnover of less than $50 million. Different tests apply depending on whether the lessee is a franchisee or a corporation that is a member of a group.

Prohibited Enforcement Action: Termination of lease, eviction of lessee and re-entry into premises, claims for damages, payment of interest, recover of security bonds (which would include a bank guarantee).

Prescribed Breaches: Failure to pay rent and outgoings and failure to remain open for trade/business.

Impacted Lease: A retail or commercial lease entered into before 26 June 2021 (including option leases which may be entered into after that date), where the lessee is an Impacted Lessee.

Impact of provisions

Renegotiation of rent / rent relief

• An Impacted Lessee may request that the parties renegotiate the rent and other terms of the Impacted Lease. The parties must renegotiate in good faith.
• Negotiations must be commenced within 14 days of a request or a longer period that both parties have agreed to.
• The parties must take into consideration the economic impacts of the pandemic and the leasing principles in the National Code of Conduct (this is the same Code from April 2020) (Code).
• The Code essentially provides for proportional rent reductions based on the corresponding decline in turnover, with a minimum of 50% to be waived and the balance deferred and repaid over the term of the lease or 24 months (whichever is greater).
• The Impacted Lessee may make an additional request for reduced rent provided that it is for a later period (e.g. the parties could negotiate a reduced rent for July-September and the lessee could still seek a further reduction for October-January).

Lessee to provide evidence

Impacted Lessees must give the lessor a statement that they are an Impacted Lessee, together with supporting evidence.

Prohibited Enforcement Action

• A lessor cannot take Prohibited Enforcement Action against an Impacted Lessee for a Prescribed Breach that occurs during the Prescribed Period unless the matter is first referred to mediation and the mediation fails. The lessor must have also complied with the rent renegotiation obligations.

• The parties to the lease can agree to disregard the regulations and take any action that they agree.

• If an Impacted Lessee takes action as required by law (e.g. forced closures), this is deemed to not be a breach of the lease and does not give the lessor the right to terminate the lease as a result of this action.

• Lessors are not prevented from taking Prohibited Enforcement Action on grounds not related to the economic impacts of the pandemic (e.g. damage to premises or failure to vacate).

• Tribunals and Courts must consider the leasing principles in the National Code of Conduct when making decisions.

Rent not to increase

The rent payable under an Impacted Lease cannot be increased during the Prescribed Period other than rent, or a component of rent, which is determined by turnover.

Original post

Significant changes to leasing practice in New South Wales have been made by the commencement of the COVID-19 Legislation Amendment (Emergency Measures) Act 2020 (NSW) (the Act) on 25 March 2020. The changes are effectively immediately.

What are the changes?

The Act allows the Minister to recommend regulations amending legislation governing retail leases (for example, leases of supermarkets, pharmacies, news stands) as well as residential tenancies (specifically, tenancies in respect of residential premises). In particular, the Act allows regulations to be made in order to:

• prohibit landlords from re-entering the premises in particular circumstances (meaning a landlord cannot evict a tenant in particular circumstances)
• prohibit landlords from terminating a lease or tenancy in particular circumstances (meaning a landlord cannot terminate a lease in particular circumstances)
• regulate or prevent the exercise or enforcement of any other rights of a landlord relating to the premises pursuant to certain acts or an agreement in particular circumstances (meaning a landlord cannot exercise certain rights given in a lease or other legislation, for example, claiming compensation)
• exempting a tenant, or a class of tenants, from the operation of a provision of an act or any agreement relating to the leasing or licensing of premises or land (meaning the Parliament can give concessions to certain groups of tenants).

Which kind of leases and tenancies will be affected?

The Act will affect the following types of leases:

• retail leases under the ambit of the Retail Leases Act 1994 (NSW)
• residential tenancy agreements under the ambit of the Residential Tenancies Act 2010 (NSW)
• farm leases under the ambit of the Agricultural Tenancies Act 1990 (NSW)
• occupancy agreements under the ambit of the Boarding Houses Act 2012 (NSW)
• site agreements under the ambit of the Residential (Land Lease) Communities Act 2013
• any other legislation relating to the leasing of premises or land for residential or commercial purposes

Will office leases be affected?

The Act specifically amends ‘any other legislation relating to the leasing of premises or land for commercial purposes’, which indicates that it will apply in part to commercial leases, and may make amendments to the Conveyancing Act 1919 (NSW) which affect commercial leases.

The proposed amendments are not yet known.

What are the particular circumstances and the actual impacts?

The Act has not defined what the particular circumstances are, and these will constitute those measures which the Minister considers to be necessary for responding to the pandemic as are prescribed by the regulations.

It is likely that the regulations will, amongst other things, temporarily:

• prohibit landlords from evicting tenants due to non-payment of rent (including outgoings, GST and other contributions)
• restrict landlords from calling on bond money, such as cash security bonds and bank guarantees
• prohibit landlords from charging penalty interest on late payments of rent.

Maddocks has produced guides to a range of legal issues raised by the coronavirus (COVID-19). You can access these guides here.