On 14 July 2021, the NSW Government enacted the Retail and Other Commercial Leases (COVID-19) Regulation 2021. The protections provided to commercial or retail tenants under the Regulation are significant following the amendments that passed on 13 August 2021 to reinstate the National Cabinet’s Commercial Leasing Code of Conduct.
How Does This Influence Rent Reductions for Eligible Tenants?
Since coming into effect on 13 August 2021, the new rules require landlords to negotiate rent relief arrangements with eligible tenants inline with the principles outlined in the Code of Conduct, having regard to the economic impact of COVID-19.
Under these principles, landlords must offer rent relief proportionate to the tenant’s decline in turnover. At least 50% of the rent relief provided must be in the form of a waiver, with the remaining rent balance represented in a deferral of payment. If any component of the rent is deferred, the tenant must pay it back over a 24-month period, or the balance of the lease term – whichever is greater.
A tenant must also be permitted to extend their lease for a period that is equivalent to the rent waiver/deferral period.
Who is Eligible to Receive Rent Reductions?
In order to be eligible for the rent relief protections, a tenant must qualify as an “impacted lessee”. An impacted lessee is someone who:
Entered a lease before 26 June 2021
Tenants must have entered into the lease before 26 June 2021 to be eligible. It is important to note that while tenants who entered new leases after 26 June 2021 are not eligible, this does not apply to renewed leases.
Had an annual turnover of less than $50 million for the 2020/2021 financial year
The turnover of the business conducted by the tenant is classed as the relevant turnover. It also includes any turnover derived from internet sales. In the event that the tenant is a franchisee, the turnover of the business conducted at the premises is the relevant turnover. If the tenant is a member of a group, the turnover of the group will be the relevant turnover.
Was eligible for the following grants:
- 2021 COVID19 MicroBusiness Grant
- 2021 COVID-19 Business Grant
- 2021 JobSaver Payment
Generally, if as a result of the public health orders, lockdowns and restrictions, a tenant’s decline in turnover is at least 30%, they are also eligible.
It is the tenant’s responsibility to prove eligibility and produce evidence to the landlord including tax returns, accountants letter, BAS, and documents confirming the tenant is eligible for one of the COVID-19 grants. The regulations do not prescribe a specific period to use to calculate the tenant’s decline in turnover, so parties are free to determine an appropriate period that works for their unique situation.
What Protection is Available for Tenants?
From 13 July 2021 until 13 January 2022, a landlord cannot take certain enforcement against an eligible commercial or retail tenant, unless the parties have first renegotiated rent and attempted mediation, or have agreed otherwise.
The principles in the Code outline that Landlords:
- Must not terminate leases for non-payment of rent
- Must not increase the rent, unless the rent is based on turnover
- Must not draw on a tenant’s security (including cash, bank, or personal guarantees) for non-payment of rent, unless the parties agree otherwise
- Must pass on to tenants any reductions they receive in statutory charges (including land tax, council rates, and other expenses or outgoings that should be waived during the period in which a tenant is unable to trade)
- Must not charge fees or interest on rent that is waived or deferred
The principles in the Code also outlines that Tenants:
- Tenants must not be penalised for reducing trading hours or ceasing to trade
- Tenants must remain committed to the terms of their lease, subject to any negotiated amendments
What About Mandatory Mediation?
Under the new rules, mediation is mandatory. This means that a landlord cannot take enforcement action, including re-entering premises, terminating a lease, or exercising any other right of a landlord unless the parties have first renegotiated rent and attempted mediation.
Eligible tenants will be protected unless the mediation has failed to resolve the dispute and the Small Business Commissioner certifies reasons for the failure in writing.
What Assistance Will be Provided for Landlords?
A landlord who provides rent relief to an eligible tenant is entitled to land tax relief of the same value of up to 100% of their land tax liability for 2021. A rebate is available for landlords who have already paid land tax, while it will be waived for landlords who are yet to pay.
The Commercial Landlord Hardship Fund
The Commercial Landlord Hardship Fund provides support to smaller property owners whose main source of income is affected as a result of the rent relief provided to their tenant. Monthly grants of up to $3000 may also be available to eligible small commercial or retail property owners if they provide rent waivers at least equal to the value of the hardship grant and any land tax relief.
More details regarding eligibility criteria and the application process will be finalised and released by the NSW Government soon.
To discuss how the above may impact your unique situation, please get in touch with our BlueRock Law team of Melbourne lawyers for a free consultation.