COVID-19: (Australia) New South Wales Government Updated Commercial Leases and Other Commercial Leases – September Update
* This information is correct as of Monday September 27, 2021 at 12:00 p.m. and is subject to change depending on the evolution of the situation.
On August 25, 2021, we issued a update regarding recent changes. The alert below provides an updated summary of the current status of key elements of the settlement.
The government of New South Wales recently updated the Commercial Leases and Other Commercial Leases Regulation 2021 (COVID-19) (the Settlement) to provide additional protections to tenants on affected leases amid the disruption caused by the COVID-19 pandemic. The updated regulation imposed additional obligations on donors, similar to those imposed during the worst economic impacts felt by the pandemic in 2020 and January 13, 2022. The regulation was amended on September 24, 2021.
Below is a summary of the current state of key elements of the settlement.
What are the relevant dates?
The regulation entered into force on August 13, 2021 and will be repealed on January 15, 2022.
It applies to commercial leases and also amends the Disposals (General) Regulation 2018 to impose similar obligations on lessors and tenants of commercial premises.
What leases does the regulation apply to?
The regulation applies to commercial leases and other commercial leases to which an “affected tenant” is a party, other than:
- a lease entered into as of June 26, 2021 (except by way of renewals / options or other extensions / renewals under the same conditions as the existing lease); Where
- a lease under the Agricultural Rental Act 1990.
The impacted lessees are companies with a turnover of less than AU $ 50 million for the 2020-2021 fiscal year and which benefit from one or more of the following grants:
- the COVID-19 2021 microenterprise grant;
- the COVID-19 2021 business subsidy; Where
- the JobSaver 2021 payment,
or would qualify without a COVID-19 disaster payment made to the tenant by the Commonwealth.
The A $ 50 million turnover limit is determined as follows:
- when the lessee is a franchisee – the turnover of the activity carried out in the premises or on the land concerned;
- when the tenant is a company member of a group – the group’s turnover; and
- in all other cases – the turnover of the business realized by the tenant.
Mandatory mediation obligation
A landlord should not take any “prescribed action” against a tenant who has committed a prescribed violation unless:
- the matter was first referred to mediation and the Registrar of Retail Rental Disputes certified in writing that mediation failed to resolve the dispute; and
- if the lessee has requested renegotiation under the settlement, the lessor has complied with this obligation.
If both the lessor and the lessee agree to waive the obligations to renegotiate or attempt mediation, prescribed action may be taken with respect to the affected leases without taking these steps.
What is a prescribed violation?
A prescribed breach of an affected lease means:
- non-payment of rent; Where
- failure to pay expenses; Where
- the business operated under the lease is not open for business during the hours specified in the lease.
What is a prescribed action?
Prescribed action means taking action under a commercial lease to:
- eviction of the lessee of the premises or land covered by the commercial lease;
- exercise a right of re-entry into the premises or land covered by the commercial lease;
- repossession of premises or land;
- seizure of goods;
- interest payments or charges related to unpaid rent owed by the tenant;
- recover all or part of a deposit under the commercial lease;
- the lessee fulfilling his obligations under a guarantee under the commercial lease;
- termination of the commercial lease; Where
- any other remedy otherwise available to a landlord against a tenant under common law or statute.
Can the lessor intervene for other reasons?
Yes. The regulation stipulates that donors will not be prevented from taking the prescribed measures for reasons that are not related to the economic impacts of the COVID-19 pandemic.
For example, a lessor will not be able to terminate a commercial lease if an impacted tenant has not been able to pay rent due to a financial downturn due to COVID-19 restrictions. However, a lessor may terminate a commercial lease if the lessee has committed a breach by damaging the premises.
Obligations of affected tenants under the settlement
Tenants must provide the lessor with a statement that they are an impacted tenant (being eligible for the aforementioned grants due to the impacts of COVID-19 restrictions, and having a turnover of less than AU $ 50 million), and evidence to that effect.
The declaration and the proofs must be provided within a reasonable time after their request by the lessor. They can be given before or as soon as possible after a prescribed breach occurs.
The lessor may request the provision of this statement or proof at any time if it is reasonably required to ensure that the lessor continues to be an impacted lessee. This information cannot be requested more than once every two weeks.
Obligation not to increase the rent
The regulation introduced an obligation that requires that the rent payable under an impacted lease not be increased during the prescribed period (i.e. between July 13, 2021 and August 20, 2021), other than a rent or a component of rent determined by reference to turnover.
Obligation to renegotiate
The parties to an impacted lease may ask the other parties to renegotiate the rent payable under the impacted lease and other conditions thereof.
Within 14 days of receipt of the request (or as agreed between the parties), the party receiving a renegotiation request must renegotiate in good faith the rent payable and other terms of the affected lease. In this renegotiation, the parties must take into account the economic impacts of the COVID-19 pandemic and the rental principles set out in the National Code of Conduct.
In these renegotiations, the subsidies necessary to qualify a lessee as an impacted lessee are to be treated as if they were part of its activity or its turnover. A lessor is not required to reduce rent for periods when the tenant is not an impacted tenant, and may provide that negotiated rent reductions will not apply during these periods.
A second separate renegotiation request may be made by the affected tenant during the prescribed period as long as it does not relate to rent or expenses for a period for which the rent or expenses have already been reduced, abandoned or deferred following a prior renegotiation under the Rules, unless the tenant ceases to be an impacted tenant during the period.
What are the key elements of the national code of conduct?
During the COVID-19 pandemic, the National Cabinet’s Mandatory Code of Conduct: Commercial Leasing Principles for SMEs seeks to impose good faith leasing principles to be applied to commercial leases amid the business disruption and economic impacts caused by the COVID-19 pandemic.
Among other requirements, under the Code of Conduct:
- Lessors must offer tenants proportional reductions in rent payable in the form of waivers and deferrals, up to 100 percent of the amount ordinarily payable, which must be calculated on a case-by-case basis based on the reduction in tenant activity during COVID. -19 pandemic period and subsequent reasonable recovery period; and
- Of these reductions, at least 50 percent must take the form of a waiver, and the balance of the reduction in the form of a deferral, which must be amortized over the remainder of the lease term and for a period of at least 24 months, whichever is greater (unless otherwise agreed or waived by the tenant).