RE-INTRODUCTION OF MANDATORY RELIEF: COVID-19 LEASING UPDATE
In update to our article on the Retail and Other Commercial Leases (Covid-19) Regulation 2021 (NSW) that was introduced on 14 July 2021, the NSW Government has since released an amendment under the Retail and Other Commercial Leases (COVID-19) Amendment Regulation 2021 (Regulation).
The object of the Regulation is to extend upon the protections offered to commercial and retail tenants continuing to be impacted by the current NSW lockdown. The main amendments are set out below.
Not surprisingly the prescribed period that commenced on 13 July 2021 and has been extended from 20 August 2021 to 13 January 2022 to deal with the prolonged lockdown.
Re-introduction of the Code
Importantly, the previous version did not require landlords to provide rent relief to ‘impacted lessees’. The Regulation has reverted to mandated relief through the resurrection of the Federal Government’s National Code of Conduct (Code).
The Code which was first introduced back in April 2020 and required parties to engage in the re-negotiation of rent and other terms of the lease having regard to the leasing principles set out in the Code. These include:
Landlords must not terminate leases due to non-payment of rent during the COVID-19 pandemic period (or reasonable subsequent recovery period).
Tenants must remain committed to the terms of their lease, subject to any amendments to their rental agreement negotiated under this Code.
Landlords must offer tenants proportionate reductions in rent payable in the form of waivers and deferrals of up to 100% of the amount ordinarily payable, on a case-by-case basis, based on the reduction in the tenant’s trade during the COVID-19 pandemic period and a subsequent reasonable recovery period.
Rental waivers must constitute no less than 50% of the total reduction in rent payable. Tenants may waive the requirement for a 50% minimum waiver by agreement.
Landlords should where appropriate seek to waive recovery of any other expense (or outgoing payable) by a tenant, under lease terms, during the period the tenant is not able to trade.
No fees, interest or other charges should be applied with respect to rent and no fees, charges nor punitive interest may be charged on deferrals.
Landlords must not draw on a tenant’s security for the non-payment of rent (be this a cash bond, bank guarantee or personal guarantee) during the period of the COVID-19 pandemic and/or a reasonable subsequent recovery period.
Landlords agree to a freeze on rent increases (except for retail leases based on turnover rent) for the duration of the COVID-19 pandemic and a reasonable subsequent recovery period, notwithstanding any arrangements between the landlord and the tenant.
Landlords may not apply any prohibition or levy any penalties if tenants reduce opening hours or cease to trade due to the COVID-19 pandemic.
The Regulation does not give the Court or Tribunal power to impose the renegotiated terms, but says that they must consider the Code when dealing with leases.
Obligation to Renegotiate
Re-negotiations must commence within 14 days of a request from either party to an impacted lease. The parties also need to take into account the economic impacts of the COVID-19 pandemic and the Code when re-negotiating.
A party may make more than 1 request to renegotiate an impacted lease during the prescribed period, however they are not entitled to seek further relief in respect of a period for which they have already received relief.
Even if a landlord is deemed to have complied with its obligations to renegotiate or if renegotiations fail, a landlord’s right to take a prescribed action remains subject to compulsory mediation with the Small Business Commissioner.
As a result of these amendments, the Regulation is now relatively similar to previous versions released in 2020.
Henry William Lawyers can assist with any related enquiries. Feel free to contact our people:
Ron Zucker 0410 590 111
Vincent Tripodina 0408 228 108
Chelsea Woodward 0404 065 899