In response to the latest COVID-19 restrictions, the NSW Government on 13 August 2021 passed the Retail and Other Commercial Leases (COVID-19) Amended Regulation 2021 (“New Regulation”), effectively reintroducing the 2020 regulations.
The New Regulation prevents landlords from taking ‘prescribed actions’ from 13 July 2021 to 13 January 2022 (“Prescribed Period”) under certain retail leases for the tenant’s failure to pay rent and outgoings, or to trade. Landlords may only take ‘prescribed actions’ such as terminating the lease, evicting the tenant, claiming interest or recovering from a security bond or bank guarantee after a failed compulsory mediation.
We set out the key aspects of the New Regulation below.
1. WHAT KIND OF LEASES AND TENANTS ARE PROTECTED UNDER THE NEW REGULATION?
The New Regulation applies to retail shop leases entered before 26 June 2021 (including leases entered into by way of an option to extend or renew) where the tenant is an ‘impacted lessee’.
An ‘impacted lessee’ is a tenant who:
• qualifies for one or more of the COVID-19 Microbusiness Grant, COVID-19 NSW Business Grant, and JobSaver Payment; and
• has a turnover in the business or group (including online sales) of less than $50 million for the 2020 – 2021 financial year.
2. WHAT KIND OF EVIDENCE IS REQUIRED TO BE PROVIDED TO THE LANDLORD?
A tenant must provide a statement and evidence that it is an ‘impacted lessee’. This can be achieved by providing a statement to that effect along with a copy of their Business Activity Statements to demonstrate the $50 million turnover criteria, and evidence that the tenant is receiving or qualifies for the one of the government grants noted above.
An ‘impacted lessee’ must provide this information before a prescribed breach occurs (e.g. failure to pay rent or outgoings or to trade) or as soon as practicable, and within a reasonable time if requested by the landlord.
3. WHAT NEXT?
If the tenant is an ‘impacted lessee’, the parties must renegotiate the rent payable and other terms of the lease. Either party may request the other to renegotiate and must commence negotiations within 14 days of the request or within a period agreed by the parties. Subsequent requests for renegotiation can be made if it is submitted during the Prescribed Period and it does not relate to the same period that was renegotiated earlier, unless the landlord agrees otherwise.
The parties must renegotiate in good faith having regard to the economic impacts of COVID-19, and the leasing principles in the National Cabinet Mandatory Code of Conduct – SME Commercial Leasing Principles (“Code”). Among other things, the Code requires landlords to provide rent relief in proportion with the tenant’s substantiated decline in turnover and at least half of the rental relief must be in the form of a waiver, subject to the landlord’s financial ability to provide such rental relief.
4. WHAT IF THE RENEGOTIATION FAILS?
The matter is referred to mediation through the NSW Small Business Commissioner. Should the mediation then be unsuccessful and certified to be so, the landlord may take ‘prescribed actions’ unless the tenant pursues proceedings through the NSW Civil and Administrative Tribunal or the courts.
5. WHAT ARE THE BENEFITS FOR LANDLORDS PROVIDING RENT REDUCTION TO TENANTS?
Landlords will be entitled to land tax relief to the equal value up to 100% of their land tax liability for 2021. This is available by way of a credit or refund for land tax paid or a waiver for those landlords yet to pay. For more information regarding the land tax relief, please refer to the Revenue NSW website.
Small commercial or retail landlords may be eligible for a grant from the Commercial Landlord Hardship Fund, which will provide to landlords a grant of up to $3,000 per month per eligible tenancy in proportion to the rental waiver provided. To be eligible, landlords must:
• have a total taxable unimproved landholding of less than $5 million (excluding primary place of residence);
• have not claimed land tax relief for the relevant property for rent reductions or waiver between 1 July 2021 – 31 December 2021;
• have gross rental income as their primary source of income (more than 50% of total assessment income) for the 2019 – 2020 financial year;
• be a landlord with a current lease that provided rental relief to the tenant from 13 July 2021 that will not be claimed as 2021 land tax relief;
• the tenant is an ‘impacted lessee’ under the New Regulation; and
• attest that providing rent relief to the tenant will cause financial hardship.
Further details regarding the fund and its guidelines have just been published here.
Written on 02/09/2021
Disclaimer: The contents of this publication are general in nature and do not constitute legal advice. The information may have been obtained from external sources and we do not guarantee the accuracy or currency of the information at the date of publication or in the future. Please obtain legal advice specific to your circumstances before taking any action on matters discussed in this publication.
