On Friday, 24 April 2020 the NSW State Government passed the Retail and Other Commercial Leases (COVID-19) Regulation 2020. The regulation implements the National Cabinet's Mandatory Code of Conduct, SME Commercial Leasing principles during COVID-19. These regulations have been of keen interest to many of our clients, both landlords and tenants.
Key terms of the regulation include:
- the relief provisions last for 6 months and they won't apply to any new leases entered into after 24 April 2020;
- relief is granted to entities qualifying for Jobkeeper payments;
- landlords are prevented from taking a list of enforcement actions for failure to pay rent, failure to pay outgoings or for businesses not being open for business during the hours specified in the lease.
- rent is not to be increased during the prescribed period, unless it is turnover rent;
- if lessee's pay a fixed amount to contribute to land tax, other statutory charge or insurance, lessors must pass on any reduction;
- any party to a lease may request renegotiation and the lease parties must renegotiate in good faith, the rent payable under the terms of the commercial lease having regard to the economic impacts of COVID 19 and the leasing principles in the national code of conduct, particularly the principle requiring landlords to offer rent reductions, in the form of waivers or deferrals of rent, proportionate to lessees' reductions in turnover;
- there is compulsory mediation of lease disputes prior to any lessor recovering possession, terminating a commercial lease or enforcing any other right of the lessor under the lease.
What you should do as a lessor?
Given that the Code has now been passed, you will now receive approaches from lessees seeking to renegotiate rent. To prepare for these approaches we recommend that you take stock of your present position and financial constraints to identify the ways in which you are able to work with your tenants to achieve solutions to the current economic distress. Working with your tenants should ensure you protect the value of your asset and retain tenants once the crisis has passed. In many cases this will require a longer term focus.
Although the pandemic is having a devastating impact on many, this does not apply to all and you should still keep an eye out for those lessees attempting to garner a benefit in circumstances where they have not been impacted sufficiently to warrant relief.
In all cases, tread carefully before taking enforcement action.
What you should do as a lessee?
For lessees detrimentally impacted by COVID-19, open up a dialogue with your lessor or property manager. If you qualify for the JobKeeper payment this regulation now gives you the right to seek to negotiate. Take financial stock and, where possible, provide the financial data to justify any proposals you put forward for your landlord's consideration.
A link to the full text of the regulation can be found below.