Temporary Relief for Retail and Commercial Tenants Among the Recent Lockdowns

KEY TAKE OUTS

Similar to the 2020 COVID-19 lockdown in Sydney, further COVID-19 relief to retail and commercial leasing laws now apply. Under these new laws, landlords are restrained from taking certain actions for certain breaches of leases, until 20 August 2021. The new legislation, being the Retail and Other Commercial Leases (COVID-19) Regulation 2021 can be found here: Retail and Other Commercial Leases (COVID-19) Regulation 2021 (nsw.gov.au)

Interestingly, the new legislation does not mention the 2020 leasing Code of Conduct, nor does it require landlords to accept a reduction in rent during the prescribed period.

As with last year’s lockdown, the NSW government has introduced temporary relief for retail and commercial leases, primarily aimed at providing further protection to tenants that are affected by the lockdown. Whilst the assistance is not identical to the relief provided last year, the temporary provisions are similarly aimed at reducing the stress of the COVID-19 mandatory lockdown on small businesses that are tenants. These changes will apply to all retail and commercial leases entered prior to 26 June 2021. At this stage, the protections will remain in place until 20 August 2021, unless extended at a later date.

A few important definitions relevant to these provisions are:

• Prescribed action – means the landlord taking an action to evict the tenant, exercising a right of re-entry, re-taking the premises or confiscating goods, enforcing forfeiture, seeking damages, requiring interest to be paid on unpaid rent, recovering the bond, enforcing against guarantors, terminating the lease, or any other remedy available at law.
• Prescribed breach – means a breach made by the impacted lessee regarding a failure to pay rent, pay outgoings, or if the business is not operating during the prescribed hours set out in the lease.
• Prescribed period -– means the period from 13 July 2021 to 20 August 2021.

“Impacted lessee”

To be protected under the new legislation, the tenant must meet the definition of an ‘impacted lessee’. The criteria for a tenant to be an “impacted lessee” are that they must qualify for one of the following three grants in place to assist businesses affected by the recent lockdown:

• COVID-19 NSW Business Grant;
• Job Saver Grant; or
• Micro-business COVID-19 Support Grant.

The satisfaction of any of these grants requires that the tenant has suffered a reduction of over 30% in turnover. Additionally, the business must have an annual turnover below $50 million.

Restrictions on landlord’s actions

The changes brought by the Retail and Other Commercial Leases (COVID-19) Regulation 2021 (NSW) significantly restricts the actions that a landlord may take against a tenant for breach of a lease term, within the prescribed period. Regardless of lease provisions relating to dispute resolution mechanisms agreed to by the parties, landlords are not permitted to take a prescribed action against an impacted tenant on the basis of a prescribed breach, prior to undertaking mediation under the Retail Leases Act 1994 (NSW). Only after a mediation taking place, and the Registrar certifying that the mediation failed to resolve the dispute, then the lessor may take a prescribed action.

In response to a prescribed breach of the lease, the tenant must provide the lessor with a statement outlining that they are an impacted lessee and further, must provide evidence of the same. Although, what kind of evidence is not made clear in the regulation. Given that evidence of grant approval would be the strongest evidence that they are an impacted lessee, this may be difficult for tenants to provide, as at this stage not all of the proposed grants to assist businesses are in place and available for tenants to make applications to obtain support or recognition as an impacted lessee.

Additionally, as an incentive for landlords to decrease rent, they may, depending on the circumstances, apply for a grant of up to $1,500.00 or land tax reductions.

Actions landlords can still take

Prescribed actions remain available to lessors in circumstances where the breach of a lease is not a prescribed breach, that is, a failure to pay rent, outgoings or keep their business open. For example, if a tenant’s lease term has expired, and they have no option to renew but refuse to leave the premises, the landlord may still take prescribed action to evict the tenant. Similarly, if the tenant is damaging or making alterations to the premises not authorised by the lease provisions, the lessor may still recover the bond to repair or restore the premises, and take any other prescribed action.

What should I do if I have a tenant in breach of a lease?

Now more so than ever, we recommend that you seek legal advice prior to taking any action against a tenant, including commencing legal proceedings prior to mediation, terminating a lease or recovering bond money. Even if an action cannot be taken at this stage, you can still develop a plan for how to proceed after the moratorium expires, or you can come to an arrangement with the tenant through mediation.

What should I do if I am a tenant in breach of a lease?

We recommend that you or your legal representative speak to your landlord as soon as possible to make it clear which of your lease terms you have or are at risk of breaching. If you cannot come to an understanding, mediation should be an effective way to come to an agreement with your landlord. You should also ensure that you are not breaching the lease in any way that does not come under a prescribed breach, as this could provide an opportunity for your landlord to take action against you regardless of these new protections.