Last week, the NSW Government passed the Retail and Other Commercial Leases (COVID-19) Regulation 2021 (Regulation) to assist retail and commercial tenants impacted by the escalating COVID-19 pandemic. The Regulation takes effect from 13 August 2021 until 13 January 2022.
To be eligible for support under the Regulation (an eligible lessee), a tenant must:
- • have entered into their lease on or before 26 June 2021 and:
- • have an annual turnover of less than $50 million in 2020-21;
- • qualify for one or more COVID-related government support payment (the Micro-business COVID-19 Support Grant, the COVID-19 NSW Business Grant and/or the Job Saver Grant); and
- • provide documentation to their landlord evidencing the above.
Franchisees are also eligible for relief under the Regulation, with turnover (for the purposes of eligibility) to be based on the franchisee’s business operated from each individual premises. For tenants who operate their business as part of a corporate group, turnover (for the purposes of eligibility) is based on the turnover of the entire group. Tenants on “holdover leases” (when a tenant continues to occupy and use the premises after a lease term ends) are also entitled to relief under the Regulation.
What relief?
The Regulation obliges eligible lessees and their landlords to renegotiate, in good faith, the terms of their Lease having regard to the economic impacts of the COVID-19 pandemic and the National Cabinet Mandatory Code of Conduct—SME Commercial Leasing Principles During COVID-19 (Code). The Code sets out a number of principles which are intended to assist eligible lessees and landlords to reach an agreement in relation to their lease including:
- • a prohibition on landlords terminating leases for non-payment of Rent;
- • an obligation on eligible lessees to continue to comply with their obligations under their respective Lease(s);
- • an obligation on landlords to offer rent reductions in the form of deferrals (postponement of Rent) or waivers that are proportional to the Tenant’s decrease in turnover. Rent waivers must comprise at least half of the total rent reduction;
- • a prohibition on landlords charging fees or interest on rent or other payments being deferred (is “or other payments being deferred’ correct here??);
- • a prohibition on landlords calling on security deposits, bank guarantees and personal guarantees;
- • a requirement for landlords to provide their Tenants with an opportunity to extend their Leases for an equivalent period of the rent waiver and / or deferral;
- an automatic freeze on rent increases for the period of the COVID-19 pandemic and for a subsequent recovery period;
- • an obligation on landlords to pass on any reduction in statutory rates or charges it receives to their tenants.
If landlords and eligible lessees cannot successfully renegotiate the terms of their respective Lease, the Regulation requires the matter to be referred to the NSW Small Business Commission for mediation before a landlord can take further action against an eligible lessee.
Importantly, the Regulation does not prevent landlords from taking action against eligible lessees for reasons not related to the economic impact of the COVID-19 pandemic.
Landlord support:
Landlords who provide rent relief to eligible lessees will be entitled to land tax relief of equivalent value, up to a maximum of 100% of their land tax liability for 2021 on the relevant property, and may also be entitled to monthly grants from the NSW Government.
An example:
Sally owns a retail clothing business in Newcastle. Sally has occupied her premises as a tenant since January 2020 however, due to public health orders, has temporarily closed her store. Sally has suffered a 70% decline in turnover as a result, but has applied for (and received) the COVID-19 business grant and COVID-19 micro-business grant.
Sally has approached her landlord with a formal request for rent relief together with a letter from her accountant evidencing her turnover in 2020-21 and confirmation of her registration for the COVID-19 grant. Sally and her landlord agree that she should receive a waiver of 35% of current rent, with a further 35% to be deferred until Sally can resume trade and document this arrangement by way of a Deed.
Osborn Law is continuing to monitor the implementation of the Regulation and will keep you up to date on any changes. In the meantime, 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.
