News

Update | Second extension of the prescribed period applies only to retail shop leases

by Chris Drayton and Kristina Jukic
22 December 2020
Share: 

Further to our brief note yesterday (which can be found here) regarding the extension of the NSW COVID Regulation to 28 March 2021, we now summarise the key changes implemented through the Third NSW COVID Regulation. 

The Third NSW COVID Regulation repeals the NSW COVID Regulation and Second NSW COVID Regulation. 

The NSW Small Business Commission has confirmed, in line with the Minister for Finance and Small Business’ media release dated 18 December 2020, that the intention is that from 1 January 2021 the protection of the extended prescribed period applies for the benefit only of retail tenants who meet the eligibility requirements.

The position remains that an impacted lease is a “commercial lease to which an impacted lessee is a party”.

A commercial lease is defined as a retail shop lease entered into before 24 April 2020, and not to new leases. We note ‘new leases’ excludes option leases and any other extension or renewal of an existing lease on the same terms as the existing lease.  The Third NSW COVID Regulation does not apply to a commercial lease within the meaning of Schedule 5 to the Conveyancing (General) Regulation 2018.

A retail shop lease is a lease covered by the Retail Leases Act 1994 (the Act).  The types of shops to which the Act applies are listed in Schedule 1 of the Act and include clothing shops, hairdressers, beauticians, cafés and restaurants and businesses in a retail shopping centre. 

As and from 1 January 2021 to be an impacted lessee, a lessee must: 

  • qualify for the Commonwealth Jobkeeper Scheme. The eligibility test for the Jobkeeper Scheme will change on 4 January 2021 and businesses must demonstrate that they have met the relevant decline (being 30%) in turnover test with reference to their actual GST turnover in the December quarter 2020 to be eligible for the JobKeeper Payment from 4 January 2021 to 28 March 2021. Clause 4 (2) of the Third NSW COVID Regulation ensures the new eligibility requirements will apply from 1 January 2021; and    
     
  • have a turnover (which includes turnover from internet sales of goods and services) of which in the 2018-19 financial year was less than $5m. The threshold was previously $50m but has now been reduced. Note the following provisions remain unchanged: if the Commercial Lessee is a franchisee, the turnover relevant is the turnover of the business conducted at the leased premises; if the Commercial Lessee is a corporation that is a member of a group (defined as related bodies corporate as defined in the Corporations Act 2001 (Cth)), the turnover relevant is that of the group; and in any other case, the turnover relevant is the turnover of the business conducted by the lessee. 

Tenants that have already been receiving rent relief under the Second NSW COVID Regulation may seek further rent relief from 1 January 2021 to 28 March 2021, provided they satisfy the eligibility requirements. The extension of the prescribed period will not result in current rent relief arrangements between landlords and tenants being automatically extended.   

Eligible landlords that reduce the rent of eligible tenants between 1 January 2021 and 28 March 2021 can apply for a land tax concession on relevant properties. The concession will be applied to any unpaid 2021 land tax liability, and refunds will be issued for payments already made in 2020.