COVID-19 | Regulations reinstate rent relief regime for impacted lessees in NSW

In response to the impact of lockdowns on businesses in New South Wales, the New South Wales government has introduced the Retail and Other Commercial Leases (COVID-19) Amendment Regulation 2021 (NSW) (Updated Regulation).

What has changed?

The Updated Regulation extends the protections granted to impacted lessees under the Retail and Other Commercial Leases (COVID-19) Regulation 2021 (NSW) and Schedule 5 of the Conveyancing (General) Regulation 2018 (Earlier Regulations) to extend the prescribed period to 13 January 2022 and incorporate provision for rent relief negotiations to take place between landlords and impacted lessees. The amendments are summarised below:

• Prescribed Period: The prescribed period is now 13 July 2021 to 13 January 2022. The Earlier Regulations were due to expire on 20 August 2021.

• Impacted Lessee: An ‘impacted lessee’ must:
  • qualify for either of the 2021 COVID-19 Microbusiness Grant, 2021 COVID-19 Business Grant or 2021 JobSaver Payment;
  • have a turnover for the 2020/2021 financial year of less than $50 million. If 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 is the relevant turnover.  Otherwise, the turnover of the business conducted by the tenant is the relevant turnover. Turnover included any turnover derived from internet sales; and
  • have entered into their lease before 26 June 2021.

The ‘impacted lessee’ must establish eligibility and produce evidence that the lessee is an ‘impacted lessee’.

• Rent Relief: The Updated Regulation has re-introduced the rent relief principles from the National Cabinet Mandatory Code of Conduct released in April 2020 (Code of Conduct). A party to an impacted lease may request the other parties to renegotiate the rent payable under the impacted lease in accordance with those principles.

By way of summary the relevant principles set out in the Code of Conduct are as follows:

• • tenants should continue to pay rent to landlords where they can, and where there is financial distress of tenants as a result of COVID-19, tenants and landlords should negotiate on a mutually agreed outcome;
  • rent reductions will be proportional, based on the decline in turnover to ensure that any burden is shared between tenants and landlords; and
  • at least 50% of the rent reduction must be a waiver (unless the tenant agrees otherwise), with the balance to be deferred.
• No Increase in Rent: Landlords must not charge an increase in rent payable by an ‘impacted lessee’ during the prescribed period. A landlord may increase any other payment including outgoings or rent calculated by reference to turnover, and may charge an increase in rent payable for any period outside of the prescribed period.
• Prescribed Action Prohibited: A landlord must not take enforcement action (defined in the regulations to be prescribed action and consistent with previous regulations) in relation to an impacted lease if a tenant fails to pay rent or outgoings for, or to trade during, the prescribed period, unless the parties have first renegotiated rent and attempted mediation (see below), or the parties agree otherwise.

An act or omission of an ‘impacted lessee’ required under a law of the Commonwealth or the State in response to the COVID-19 pandemic is not a breach of the impacted lease and cannot be relied upon by the landlord to take any enforcement action.

• Parties Must Attempt Mediation before Landlord can enforce: A landlord may not:
  • seek to recover possession of premises under an impacted lease;
  • terminate an impacted lease; or
  • exercise or enforce any other right of the landlord under an impacted lease,

unless and until the Small Business Commissioner has certified in writing that mediation offered to be conducted by the Small Business Commissioner has failed to resolve the dispute and given reasons for the failure.

• Tribunals and court consideration of Code of Conduct: The Tribunal or a Court must consider the leasing principles set out in the Code of Conduct when making a decision or order relating to any of the following:
  • the recovery of possession of premises or land from an ‘impacted lessee;’
  • the termination of an impacted lease by a landlord; and/or
  • the exercise or enforcement of another right of a landlord under an impacted lease.

Assistance for Landlords Providing Rent Relief?

Landlords that provide rent relief to ‘impacted lessees’ are entitled to land tax relief of the same value up to 100% of their land tax liability for 2021. A rebate is available for those landlords that have already paid land tax and land tax will be waived for those landlords yet to pay. Please refer to our previous update on land tax relief for further information.

Additionally, the New South Wales government will establish a $40 million Hardship Fund that will provide a monthly grant of up to $3,000 for small commercial and retail landlords who provide a rent waiver of at least the same value of the grant and any eligible land tax relief. This is a new initiative that was not part of the 2020 relief package and provides a further financial incentive to grant rent relief to tenants. Further details of this Hardship Fund will be provided once available.

How can we help?

At Gadens, our Real Estate and Construction Team is well equipped to advise and assist clients that are dealing with any current rent relief negotiations including attendance at mediation.  We are here to help and invite you to contact our office should you require any assistance.

We note that Victorian Regulations under the new Commercial Tenancy Relief Scheme are expected to be published by the end of this month with further details to follow once available.

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Authored by:

Archie Smith, Partner
Belinda Drivas, Senior Associate
Nakita Rose, Lawyer