The New South Wales government has introduced new commercial and retail leasing laws that affect tenancies during the current lockdown. The Retail and Other Leases Commercial (COVID-19) Regulation 2021 and amendments to schedule 5 of the Conveyancing (General) Regulation 2018 aim to support retail and commercial landlords and tenants throughout this difficult time. These new COVID-19 regulations recognise that the existing health orders have significantly impacted businesses and their ability to meet financial obligations. The changes apply to leases entered into prior to 26 June 2021, unless the new lease is a renewal or extension of an existing lease (provided it is not an agricultural lease).
Protection provided by the new COVID-19 regulations
The new lease regulations impose a prescribed period in which impacted lessees (or tenants) are granted some protection from their landlord taking action for some typical breaches of their lease agreement. The protection granted requires the parties to mediate with the Small Business Commissioner before a landlord can pursue a prescribed action for a prescribed breach during the prescribed period against an impacted lessee.
- A prescribed action includes evicting the tenant, exercising a right of re-entry, requiring interest payments on unpaid rent, calling on security or terminating the lease.
- A prescribed breach is a tenant not paying rent or outgoings, or failing to trade as required under a lease, during the prescribed period.
- The prescribed period is from the commencement of the regulations (July 14, 2021) until August 20, 2021.
- An impacted lessee is a tenant who qualifies for the new government protection measures (including the Micro-business COVID-19 Support Grant, COVID-19 NSW Business Grant and the Job Saver Grant) and had a turnover of less than $50 million in the 20/21 financial year.
Any act or omission required by the impacted lessee to comply with other COVID-19 laws and regulations will not be considered a breach of the lease, or constitute grounds for taking a prescribed action against the impacted lessee. However, these regulations do not provide a blanket protection for tenants. The landlord may still take a prescribed action for a breach of a lease agreement which is unrelated to the economic impacts of the COVID-19 pandemic, such as damaging property or subleasing without consent.
Impacted lessee’s obligations
The new regulations place greater responsibility on tenants to provide their landlords with information showing they are an impacted lessee by giving their landlord a statement to that effect and evidence supportive of this. Evidence may include Business Activity Statements or Tax Returns confirming that the tenant meets the requirements of being an impacted lessee. This statement must be given before a prescribed breach occurs or as soon as practicable after, or within a reasonable time if it is requested by the lessor.
Implications for parties in retail and commercial leases
The new regulations are intended to prevent a landlord from terminating a lease for a tenant’s failure to pay rent or failure to trade during core trading hours. This is encouraged as landlords and tenants are allowed to form an agreement on how the tenancy will operate during the prescribed period. This agreement may be formed with the assistance of or prior to the mediation involving the Small Business Commissioner. It may take approximately 5 weeks for the Small Business Commission to allocate a mediation date following an application. The aim of this mediation requirement is to encourage full and frank disclosure between landlords and tenants, allowing appropriate variations to the lease as necessary.
These regulations encourage tenants to access the government’s economic relief package, while not forcing landlords to waive rent or trading obligations. As part of this economic relief package, the NSW government has offered an incentive to landlords who offer rent waivers to eligible impacted lessees in the period between 1 July 2021 and 31 December 2021. The landlord can apply for a reduction in land tax which is equivalent to the amount of rent waived for those premises. Landlords may take advantage of the land tax concession, while tenants may take advantage of potential rent reductions or a release from trading obligations, aiding both parties in these difficult times.
How Etheringtons Solicitors can help
A solicitor at Etheringtons Solicitors can provide clarification of the relevant law in relation to your individual circumstances. If you need further advice or assistance with commercial and property law matters, please contact one of our experienced solicitors on (02) 9963 9800 or via our contact form.