The NSW Government has announced the Retail and Other Commercial Leases (COVID-19) Amendment Regulation 2021 (Regulation). Previously the NSW Government only provided for a prohibition on evictions as noted in our previous article linked here. The amendment Regulation provides an obligatory framework for landlords’ to provide rent relief to “impacted lessees” by applying similar principles to the 2020 COVID-19 rent relief scheme.
The Regulation has extended the prescribed period in which this framework applies to commence on 13 July 2021 and end on 13 January 2022 (previously 20 August 2021).
The Regulation does not apply to retail, commercial and industrial leases (Commercial Leases) entered into on or after 26 June 2021 (except where it is a lease entered into by means of an option to extend or renew the lease or any other extension or renewal of an existing lease on the same terms as the existing lease).
Who qualifies as an “impacted lessee”?
Firstly, the lease must be an impacted lease meaning a Commercial Lease to which an impacted lessee is a party.
A lessee is an impacted lessee if they qualify for one or more of the grants/payment listed in (A), and meet the turnover requirements in (B) below:
- The 2021 COVID-19 Micro-Business Grant – To be eligible the entity must have an ABN as at 1 June 2021 and demonstrate primarily operating in NSW and have an aggregated annual turnover of more than $30,000 and less than $75,000 for the year ended 30 June 2020 and experienced a decline in turnover of 30% or more due to the Public Health Order over a minimum 2 week period within the Greater Sydney lockdown (commenced 26 June and due to end 28 August 2021) compared to the same period in 2019 or the same period in 2020 or the 2 week period immediately before lockdown commenced (12–25 June 2021). They must show that they have business costs for which there is no other government support available and that they have not applied for either the 2021 COVID-19 Business Grant or the JobSaver scheme,
- The 2021 COVID-19 Business Grant – a one-off payment grant to help businesses with cashflow support for the first 3 weeks of lockdown. It is a grant of $7,500 to $15,000 depending on the decline in turnover. Eligibility requires a revenue decline of 30% or more, annual turnover above $75,000 and payroll limit of up to $10 million,
- The 2021 JobSaver payment – a fortnightly payments to help maintain employee headcount (as at 13 July) and provide cashflow support to businesses. Eligibility requires a revenue decline of 30% or more and turnover between $75,000 and $250 million, and
- The lessee’s following turnover in the 2020 /21 financial year was less than $50 million*:
- if the lessee is a franchisee – the turnover of the business conducted at the premises or land concerned,
- if the lessee is a corporation** that is a member of a group – the turnover of the group,
- in any other case – the turnover of the business conducted by the lessee.
*Note that turnover of a business includes any turnover derived from Internet sales of goods or services.
**Corporations constitute a group if they are related bodies corporate within the meaning of the Corporations Act 2001.
Prescribed Period and Prescribed Breach
The Prescribed Period for impacted lessees commenced at the beginning of 13 July 2021 and is ending at the end of 13 January 2022.
A Prescribed Breach of an impacted lease means :
- a failure to pay rent; or
- a failure to pay outgoings; ; or
- the business not being open during the hours specified in the lease.
Landlords’ rights and obligations
A Landlord cannot take a “Prescribed Action” meaning taking any action under the provisions of a Commercial Lease or seeking orders or issuing proceedings in a court or tribunal for any of the following reasons:
- eviction of the lessee;
- exercising a right of re-entry to premises or land;
- recovery of the premises or land;
- distraint of goods;
- requiring a payment of interest on or a fee or charge related to unpaid rent otherwise payable by a lessee;
- recovery of the whole or part of a security bond under the commercial lease;
- performance of obligations by the lessee or any other person pursuant to a guarantee;
- termination of the commercial lease; or
- any other remedy otherwise available to a lessor against a lessee at common law or under the law of the State.
The rent payable under an impacted lease must not be increased during the prescribed period other than rent or a component of rent determined by reference to turnover. This means that rent reviews will be frozen during the prescribed period.
A Landlord must not take prescribed action against an impacted lessee on the grounds of a prescribed breach of the impacted lease that has occurred during the prescribed period unless:
- the matter has been referred for mediation and the Registrar has certified in writing that the mediation has failed to resolve the dispute; and
- if the lessee has requested a renegotiation as referred to below, the Landlord has complied with that clause.
Nothing prevents a Landlord and impacted lessee agreeing to action including prescribed action being taken in relation to the impacted lease without mediation or without complying with the obligation to renegotiate.
A party to an impacted lease may request that the other parties renegotiate the rent payable under and other terms of the impacted lease. A party to the impacted lease may make a second or subsequent request but unless the parties otherwise agree an impacted lessee may make a second or subsequent request only if the request is made during the prescribed period and does not relate to rent or outgoings for a period for which the rent or outgoings have already been reduced, waived or deferred following a renegotiation.
A party to an impacted lease must if requested renegotiate in good faith the rent payable under and other terms of the impacted lease and commence renegotiations within 14 days of receiving the request or another period agreed to by the parties. The renegotiation of the rent payable under and other terms of the impacted lease are to take into consideration the economic impacts of the COVID-19 pandemic and the leasing principles set out in the National Code of Conduct.
An act or omission of an impacted lessee required under a law of the Commonwealth or the State in response to the COVID-19 pandemic is not a breach of the impacted lease and does not constitute grounds for termination of the lease, or the taking of any prescribed action by the Landlord against the impacted lessee. For example, if a nail salon or hairdresser is forced to close due to COVID-19 restrictions.
Lessees’ obligation to provide information
An impacted lessee must give the Landlord:
- a statement that they are an impacted lessee; and
- evidence that they are an impacted lessee.
The information may be given before or as soon as practicable after a prescribed breach occurs and must be given within a reasonable time after it is requested by the Landlord.
If the impacted lessee does not comply with an obligation to renegotiate in good faith and commence negotiations when required (having regard to economic impacts of COVID-19 pandemic and the leasing principles set out in the National Code of Conduct), the Landlord is taken to have complied with the obligations to renegotiate. A renegotiation commenced but not concluded before the expiry of the prescribed period may be continued and concluded after the expiry.