Ask An Expert – James Cooper
WHAT RELIEF IS CURRENTLY AVAILABLE IN NSW FOR COMMERCIAL AND RETAIL TENANTS?
The NSW Government has taken steps to offer support and clarity to commercial and retail landlords and tenants by:
1. Passing the Retail and Other Commercial Leases (COVID- 19) Regulation 2021 (under the Retail Leases Act 1994); and
2. Amending Schedule 5 to the Conveyancing (General) Regulation 2018.
In a nutshell, these Regulations are designed to protect tenants from being evicted or facing action for “prescribed breaches” of their leases during this time. The Regulations are also designed to provide a baseline position for negotiating rental relief for impacted tenants.
PRESCRIBED BREACHES – WHAT PROTECTION IS GRANTED?
‘Prescribed breaches’ under the Regulations are the failure to pay rent or outgoings, or where a business ceases to trade during the hours specified in their lease.
Where one or more of these breaches occur during the ‘Prescribed Period’ of 13 July 2021 to 13 January 2022, landlords will be prevented from evicting tenants, ending a lease or making a claim (or any other remedies normally available to a landlord) without first attempting mediation.
Note that if there is rent unpaid (or other outstanding breaches) that predate 13 July 2021, the landlord may still pursue those rights. If mediation fails to resolve the dispute, the landlord may then be allowed to take further action. The Small Business Commissioner will be required to certify whether the mediation has occurred, and why it failed to resolve the dispute.
WHAT ABOUT RENT RELIEF?
Some good news for qualifying tenants is that landlords can’t increase rent during the Prescribed Period. In addition, landlords are required to negotiate a rental relief package for distressed tenants in ‘good faith’ having regard to the impact of the COVID-19 pandemic on the tenant and the leasing principles set out in the National Cabinet Mandatory Code of Conduct—SME Commercial Leasing Principles During COVID-19 (National Code).
Under the National Code, landlords should provide impacted tenants with rental relief in the form of rental waivers and rental deferrals equal to the tenant’s turnover decline in the period. Of the relief provided, 50% of the relief should be in the form of a rent waiver and 50% should be in the form of a deferral (e.g. the rent is not waived, but must be repaid over time).
For example, if a tenant’s turnover is down 60% in the impacted period, then rent should be relieved by 60% – of which 50% is waived and 50% is deferred. Where rent is deferred, payment of the deferred rent will occur over the balance of the lease term or a period of no less than 24 months, whichever is greater.
Landlords are also required under the National Code to pass on any reduction in statutory charges such as land tax and council rates, or insurance to lessees in proportion to that reduction. There are some benefits to Landlords who provide relief, in the form of land tax concessions/waivers and access to a NSW Government fidelity fund.
WHICH TENANTS ARE COVERED?
The Regulations will only apply where the tenant is a small business genuinely affected by the COVID-19 pandemic. To qualify, a business must have annual turnover of less than $50 million, and must be eligible for any of the following grants:
- 2021 COVID-19 Microbusiness Grant;
- 2021 COVID-19 Business Grant; and/or
- 2021 JobSaver Payment.
The onus is on the tenant to provide the landlord with evidence that are they eligible for any of these grants.
WHO IS NOT COVERED?
Any tenant with annual turnover of more than $50 million, and who is not eligible for any of the grants listed above.
HOW LONG ARE THE REGULATIONS IN FORCE?
The Regulations will be in effect until 15 January 2022, assuming that the legislation is not extended pending further lockdowns. The NSW Government has shown a willingness to extend the regulations where necessary due to extended lockdowns.