Covid and Commercial Leases Update 16 August 2021

Recent regulations have been legislated that provide protection for certain commercial lessees where related businesses have had a fall in turnover due to lockdowns in New South Wales. The object of this Regulation is to extend those protections as follows—

(a) to extend the prescribed period, which began on 13 July 2021, until 13 January 2022

(b) to prohibit a lessor increasing rent during the prescribed period if the lessee is an impacted lessee

(c) to require an impacted lessee to give the lessor evidence that the lessee is an impacted lessee

(d) to require lessors and impacted lessees to renegotiate rent and other terms of the lease if 1 party requests the renegotiation

(e) to require a renegotiation to be conducted in good faith with consideration being given to the leasing principles set out in the National Cabinet Mandatory Code of Conduct—SME Commercial Leasing Principles During COVID-19 (the National Principles). The Code of Conduct requires landlords to provide rent relief in proportion with their tenant’s decline in turnover. Of the rent relief provided, at least 50 per cent must be in the form a waiver, and the balance a deferral. Any deferred rent must be paid back over the balance of the lease term or for a period of no less than 24 months, whichever is greater.

(f) to require a lessor to do the following before taking action in relation to certain breaches of the lease occurring during the prescribed period—

(i) to attempt to mediate the dispute with the impacted lessee, and

ii) to engage in a renegotiation if required

(g) to provide that actions an impacted lessee takes to comply with a law are not breaches of a commercial lease

(h) to require a court or tribunal to consider the National Principles when considering whether to make certain orders or decisions relating to commercial leases.

An impacted lessee must give the lessor the following information in respect of the impacted lease— (a) a statement to the effect that the lessee is an impacted lessee

(b) evidence that the lessee is an impacted lessee.

(2) The information—

(a) may be given before, or as soon as practicable after, a prescribed breach occurs, and

(b) must be given within a reasonable time after it is requested by the lessor.

The rent payable under an impacted lease must not be increased during the prescribed period, other than rent or a component of rent determined by reference to turnover.

A lessor must not take prescribed action against an impacted lessee on the grounds of a prescribed breach of the impacted lease that has occurred during the prescribed period unless the matter has been referred for mediation and the Registrar has certified in writing that the mediation has failed to resolve the dispute, and if the lessee has requested a renegotiation, the lessor has complied with that clause.

LAND TAX

Eligible commercial landowners are also able to apply for relief on up to 100 per cent of their land tax liability for 2021. To be eligible, the landowner must have reduced rent for the affected tenant by at least the amount being claimed for any period between 1 July 2021 and 31 December 2021.

LANDLORD RELIEF

A new $40 million Hardship Fund will also be established for small landlords who primarily rely on rental income, who have provided rental waivers of at least the value of the grant and any land tax relief they are eligible for. They will be able to apply for a monthly grant of up to $3,000 to help ease the burden on them. Definitions of “small landlords” and “primarily rely on” have not yet been provided by the NSW government. The NSW government has also not yet provided details of how to apply and whether you are guaranteed the amount if you meet the criteria. We will keep you posted as this information becomes available.

In Victoria similar relief is based upon the owner having land value of up to $3 million. As mentioned, it is unclear if the rules for NSW will be the same.

Important: Clients should not act solely on the basis of the material contained in this newsletter. Items herein are general comments only and do not constitute or convey advice per se. Also changes in legislation may occur quickly. We therefore recommend that our formal advice be sought before acting in any of the areas. Client Alert is issued as a helpful guide to clients and for their private information. Therefore it should be regarded as confidential and not be made available to any person without our prior approval.