The NSW Retail and Other Commercial Leases (COVID-19) Regulation 2020 (Regulation) commenced 24 April 2020.
Object and Application
The object of the Regulation is to give effect to the National Cabinet Mandatory Code of Conduct – SME Commercial Leasing Principles During COVID-19 (National Code). The Regulation is made under the Retail Leases Act 1994 and the Conveyancing Act 1919.
The Regulation applies to the exercise or enforcement of rights under a Commercial Lease in relation to circumstances occurring during the Prescribed Period.
Before pointing out some key points, it is important to have a grasp of certain defined terms from the Regulation:
Commercial Lease – includes retail, commercial and industrial leases and means any agreement relating to leasing of premises for commercial purposes and retail shop leases but does not include leases entered in to after 24 April 2020 (except option leases or renewals of existing leases on the same terms or certain agricultural tenancies).
Impacted Lessee – is a lessee under a Commercial Lease:
- That qualifies for the Commonwealth Jobkeeper Scheme; and
- The turnover (which includes turnover from internet sales of goods and services) of which in the 2018-19 financial year was less than $50m. Note: 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 Commercial Lessee.
Prescribed Action – means taking action under a Commercial Lease or seeking orders or issuing proceedings for any of:
- Right of entry or termination of the Lease;
- Recovery of premises or possession;
- Distraint of goods;
- Interest or fee or charge related to unpaid rent;
- Claim on security or enforce guarantee;
- Any other remedy at common law or under statute.
Prescribed Period – means the period of 6 months after 24 April 2020.
- If a lessee is an Impacted Lessee, the Lessor must not take any Prescribed Action against the lessee for breach of a Commercial Lease occurring during the Prescribed Period consisting of failure to pay rent or outgoings or the business not being open for business during the hours specified in the Commercial Lease.
- If during the Prescribed Period the lessee is an Impacted Lessee, rent must not be increased for the length of the Prescribed Period (other than where the rent is determined by turnover).
- An Impacted Lessee required to pay a fixed amount representing statutory charges (eg land tax, Council rates) gets the benefit during the Prescribed Period of any fixed statutory charge reduction which the lessor receives.
- An act or omission of a lessee required by law in response to COVID-19 (eg required to cease operation) is not a breach of a Commercial Lease.
- A lessor must not take or continue any Prescribed Action against an Impacted Lessee for failure to pay rent during the Prescribed Period unless the lessor has complied with any request by an Impacted Lessee to renegotiate in good faith the rent payable and other terms of the Commercial Lease having regard to the economic impacts of COVID-19 and the leasing principles set out in the National Code. This is the provision in which rental waivers and deferrals and proportionate relief as referred to in the National Code are relevant.
- In respect of an impacted retail lease that is subject to the Retail Leases Act 1994, a dispute in relation to that lease is a dispute that is subject to the mediation and other dispute resolution procedures of the Retail Leases Act 1994. In relation to disputes under other Commercial Leases, a lessor must not during the Prescribed Period seek to recover possession of premises, terminate the Commercial Lease or exercise or enforce any other right of the lessor under the lease without first having attempted mediation through the Small Business Commissioner.
- The Regulation expressly notes that the lessor is not prevented from taking a Prescribed Action on grounds not related to the economic impacts of COVID-19 (eg failure to vacate at lease end or causing damage to the premises).
- The Regulation does not prevent parties agreeing to the taking of any Prescribed Action including terminating the Commercial Lease or reaching other agreements in relation to the Commercial Lease.
- The Regulation does not allow for an Impacted Lessee to unilaterally terminate a Commercial Lease.
- The Regulation does not apply retrospectively in that the Prescribed Period is the 6 month period after 24 April 2020. It relates to breaches during that 6 month period and not earlier.
- Note the definition criteria to be met for a party to qualify as an Impacted Lessee.
The above is a summary only of the provisions we consider particularly relevant at this time. We advise you to review the Regulation.
Please contact us if we can assist in any way in relation to strategy or advising in relation to COVID-19 leasing issues or if you have any queries in relation to the Regulation.