On 7 April 2020, the Federal Cabinet released a code of conduct (the Code) to govern Small to Medium Enterprise Commercial Leases during the COVID-19 pandemic. On 24 April 2020, the NSW Government passed the Retail and Other Commercial Leases (COVID-19) Regulation 2020 (the Regulations), adopting the Code.
The Regulations apply to retail, commercial and industrial leases entered into before 24 April 2020. The Regulations also apply to options to extend or renew existing leases, exercised after 24 April 2020.
The Regulations prohibit a lessor from taking action against an impacted lessee for the lessee’s failure to pay rent, outgoings, or not operating during lease-mandated hours. An ‘impacted lessee’ is a lessee:
who qualifies for the Commonwealth’s Jobkeeper scheme; and
has a turnover of less than $50 million for the 2019 financial year (inclusive of internet sales).
A lessor may not increase rent while the Regulations are in effect. Where a lessor receives a reduction in land tax, insurance, or other statutory charges during the operative period, the lessor must pass along that reduction to the lessee.
The Regulations further prohibit lessors from terminating leases, due to a lessee’s conduct, carried out pursuant to Federal or State law. For instance, complying with public health orders and closing premises. However, a lessor may still pursue breaches of the lease not related to the economic impacts of COVID-19.
Obligations to Negotiate
An impacted lessee or lessor may request the parties renegotiate the lease terms, including rent. The Regulations proscribe the parties must, in response to a request, negotiate in good faith, having regard to the 12 leasing principles set out in the Code (Discussed in our previous article).
If negotiations fail, disputes between the parties are governed by Part 8 of the Retail Leases Act 1994 (NSW). Where the dispute’s value is less than $750,000, parties may refer their dispute to mediation. If the Registrar of Retail Tenancy Disputes certifies the parties are unable to successfully resolve their dispute, the parties can then commence proceedings in Court or a relevant Tribunal.
Time will tell how effective the Regulations are in assisting lessors and lessees. Henry William Lawyers is available to assist commercial landlords or tenants with their leases in this difficult time.
Please contact the following persons should you or your business require any advice:
Ron Zucker +61 410 590 111
Alex Linden +61 404 821 471
Vincent Tripodina +61 408 228 108
Chelsea Woodward +61 404 065 899
Michael Mulvenna +61 424 622 174