We recently advised on the passing of the Retail and Other Commercial Leases (COVID-19) Regulation 2021 (Regulation) which took effect from 13 August 2021 to assist retail and commercial tenants impacted by the escalating COVID-19 pandemic.
To view this client alert please Click Here.
Following this alert, we received several queries regarding the Regulation and what it means specifically for landlords and tenants. When any new regulation is passed, it creates uncertainty as to application and therefore to assist, we have outlined below for your information some of the key questions our team have provided advice on in the past month regarding the Regulation.
- What is the end date?
The current Regulation ends 13 January 2022 so any agreement in respect of rent relief should be made by then. That being said, we would encourage (particularly tenant) clients to reach agreement sooner rather than later. Where an agreement is reached during the period of the Regulation, the Regulation then provides that the relief will continue during the pandemic and for a reasonable recovery period following.
- What relief is offered for landlords of eligible tenants?
As noted in our earlier alert, landlords are entitled to land tax relief in certain instances. In addition, the Commercial Landlord Hardship Fund provides grants of up to $3,000 per month per retail or commercial lease to eligible small landlords who may experience hardship as a result of reducing rent for their tenant(s) under the Regulation. Small landlords whose main source of income is impacted because they have waived some or all of the rent of a tenant who is financially impacted by COVID-19 in 2021 (not just deferred or delayed payments), and have not claimed any land tax relief for rent reductions provided between 1 July 2021 and 31 December 2021, are eligible to apply. Eligibility is assessed and applications made via Service NSW.
3. Can I contract out of the provisions?
Yes, you are able to contract out of the provisions.
4. Am I obliged to offer waivers / deferrals in proportion to the reduction in turnover? Or can I come up with my own arrangement?
Landlords are not technically obliged to offer proportionate relief. The Regulation only requires parties to ‘renegotiate’ the terms of their Lease in good faith having regard to the Code. However, if those renegotiations are unsuccessful, a mediator / Court will look at the Code as a starting point, which requires waivers and deferrals. See answer to question 7 below for more information.
5. What documentation am I required to produce to my Landlord?
The Regulation only requires Tenants to give a ‘statement’ and ‘evidence’ that the Tenant is an impacted lessee. There are other obligations in the Code to provide ‘sufficient and accurate information’, but no hard and fast rule about what needs to be provided. In the absence of any case law, it is wise to ask impacted lessees to substantiate turnover loss by providing financial information such as BAS, and other audited sets of accounts / statements to the landlord. Confidentiality / Non-Disclosure Agreements could be sought as part of the negotiations when acting for Tenants.
6. What is the obligation of sublessor to sublessee and rights of sublessor with head lessor?
Although the definitions of ‘lessor’ and ‘lessee’ in the Regulation are broad enough to capture sublease arrangements, a sublease is a separate lease by the sublessor to a sublessee. The sublessor remains liable to the head lessor under the terms of the head lease, and the sublessee has obligations to the sublessor under the sublease. Sublessors are obliged to comply with their obligations to their sublessees under the Regulation – even in circumstances where they do not meet the definition of an ‘impacted lessee’ under the head lease.
7. The current NSW Government rent relief measures say that landlords must reduce rent “in proportion” to the tenant’s decline in turnover. What does “in proportion” mean exactly?
The Code introduces the proportionality component and requires that a landlord match the decline in turnover. So, if an eligible tenant experiences a 40% decline in turnover due to COVID-19, their landlord must provide a 40% reduction in rent. At least half of that reduction must be a waiver (the tenant never has to repay the waived amount), with the remainder to be deferred for later payment. The deferred portion needs to be payable over the time left on the lease or a period of no less than 24 months, whichever is greater.
The above highlights some of the matters our Property Team have been providing clarification and guidance on. If you require any assistance regarding your specific agreement with your landlord or tenant in accordance with the Regulation or to document any rent relief agreement reached please contact our Property team on (02) 4927 2900.