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Retail & commercial lease COVID-19 relief

Key points

  • The NSW Government has introduced further relief for commercial and retail tenants that have been affected by COVID-19 lockdowns.
  • Impacted tenants can renegotiate rent with their lessor under the National Cabinet's Commercial Leasing Code of Conduct.
  • Lessors are prohibited from taking certain actions against impacted tenants including terminating leases for non-payment of rent without attempting mediation.
lease agreement

Summary

The Retail and Other Commercial Leases (COVID-19) Regulation 2021 has introduced legal protections for commercial and retail tenants that the COVID-19 lockdowns have impacted in New South Wales. If the tenant is an “impacted lessee”, there is an obligation on the lessor and tenant to renegotiate the rent and a prohibition on the lessor taking specific actions until 13 January 2022.

Eligible tenants

The legal protections only apply to commercial leases where the tenant is an “impacted lessee”. A tenant is eligible if they qualify for at least 1 of the following payments:

  • 2021 COVID-19 Micro-business Grant
  • 2021 COVID-19 Business Grant
  • 2021 JobSaver Payment

It also includes a tenant that would qualify for one of the above payments if they hadn’t received the COVID-19 Disaster Payment.

In addition to being eligible for one of the above payments, the tenant must also have a turnover of less than $50 million in the 2020-2021 financial year.

The relevant turnover depends on the type of tenant:

  • where the tenant is a franchisee – the turnover is only of the business conducted at the leased premises
  • where the tenant is a corporation part of a group (see section 50 of the Corporations Act 2001) – the turnover includes the turnover of all the group
  • for all other tenants – it consists of the turnover of the business conducted by the tenant.

Rent negotiation

An eligible tenant is entitled to several forms of rental relief.

No increase during the prescribed period

The rent cannot be increased during the prescribed period unless the rent or a component of rent is determined by reference to the tenant’s turnover.

Renegotiation of rent

The lessor and the tenant may request the other party to renegotiate the rent and other terms of the lease. If requested, the other party must participate in renegotiating the rent and other terms in good faith. 

Renegotiations must commence within 14 days of the request unless the parties agree to another period. 

The renegotiations should be undertaken in accordance with the leasing principles of the National Code of Conduct

Prohibited actions

Lessors are prohibited from taking specific actions against eligible tenants for certain breaches of the lease unless they have participated in formal mediation and renegotiated the lease under the regulations.

The prohibitions actions are centred around termination, eviction and recovery and include:

  • eviction
  • exercising a right of re-entry
  • recovery of the leased premises
  • distraint of goods
  • forfeiture
  • damages
  • requiring payment of interest, fees or charges relating to unpaid rent
  • recovery of funds from a security bond
  • performance of obligations under a guarantee
  • possession
  • termination of the lease

The lessor cannot take the prohibited actions for any of the following breaches of lease:

  • failure to pay rent
  • failure to pay outgoings
  • not operating the business for the hours required under the terms of the lease

The regulations do not prevent a lessor from taking one of the prohibited actions on grounds not related to the economic impacts of the COVID-19 pandemic. 

Prescribed period

The protections under the regulations apply from 13 July 2021 until 13 January 2022.

If renegotiations commence during this period but are not concluded by the end of the prescribed period, they can continue after the end of the period.

The prohibitions against specific actions apply for any prescribed breach of the lease that occurs during this period. Therefore, a lessor cannot take a prohibited action after the period if the breach occurred during the period. If the breach continues are the period, the lessor will be able to take those actions.

Summary

Tenants who have been affected by COVID-19 lockdowns are eligible for rental relief and legal protections. Lessors and tenants should participate in renegotiations over the rent and terms of the lease in accordance with the National Code of Conduct.  

If you are a lessor or tenant affected by COVID-19 or in negotiations over the rent or terms of your lease, get in contact with our team today for a no-obligation discussion.

Further information

Daniel is a solicitor in our team with experience in litigation, conveyancing & property and wills & estates.

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DISCLAIMER

No part of these notes can be regarded as legal advice. Although all care has been taken in preparing all notes, readers must not alter their position or refrain from doing so in reliance on any of these notes. Stephen Wawn & Associates do not accept or undertake any duty of care to readers relating to any of these notes. All inquiries should be directed to Stephen Wawn & Associates.

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