New commercial tenancy regulation in NSW to enact the National Code

Commercial Directions

The Retail and Other Commercial Leases (COVID-19) Regulation 2020 (the
COVID-19 Regulation
) provides much needed guidance for landlords and tenants operating commercial and retail leasing arrangements in NSW.

The NSW Government passed the COVID-19 Regulation on 24 April 2020 under the Retail Leases Act 1994 (NSW) (the Retail Leases Act) and the Conveyancing Act 1919 (NSW) (the Conveyancing Act) to give effect to the National Cabinet’s Mandatory Code of Conduct (the National Code) for commercial tenancies.

The COVID-19 Regulation has a prescribed period of six months and aims to:

  • Prohibit and regulate the exercise of landlords’ rights to enforce certain lease terms during the COVID-19 pandemic period
  • Require (in response to the COVID-19 pandemic) landlords and tenants to renegotiate rent and other terms in good faith having regard to the leasing principles in the National Code, before any legal enforcement action can be commenced by landlords against their tenants under those commercial leases.

Prohibitions and restrictions relating to commercial leases

The COVID-19 Regulation prohibits a landlord from taking a prescribed action (including evicting a tenant, exercising a right of re-entry, accessing the tenant’s security bond or terminating a lease) against an ‘impacted lessee’ if that prescribed action is in response to:

  • The tenant’s failure to pay rent
  • The tenant’s failure to pay outgoings, or
  • The tenant operating their business at varied or reduced hours from those specified in the commercial lease.

A tenant is an ‘impacted lessee’ under the COVID-19 Regulation if:

  • The tenant qualifies for the Commonwealth’s JobKeeper subsidy, and
  • The tenant’s turnover in the 2018-2019 financial year was less than $50 million.

Turnover, in this context, may be:

  • The turnover of the business conducted at the premises or land concerned (if the tenant is a franchisee)
  • The turnover of the tenant’s corporate group (if the tenant is a corporation that is a member of a group), or
  • The turnover of the business conducted by the tenant (in any other case).

The turnover of a business includes any turnover derived from internet sales of goods or services. Corporations constitute a group if they are related bodies corporate within the meaning of the Corporations Act 2001 (Cth).

The COVID-19 Regulation also prohibits landlords from:

  • Increasing rent for any impacted lessee, unless that rent or component of rent is determined by reference to a tenant’s business turnover
  • Actioning rent increases for impacted lessees under the terms of the lease and then seeking to recover the increased amount after the COVID-19 pandemic period
  • Recovering the full amount of outgoings from impacted lessees in the form of land tax or any other statutory charge (such as local council rates) or insurance under the terms of the commercial lease if a landlord is the recipient of any savings or reductions. In other words, any savings or reductions received by a landlord must be passed on proportionally to a tenant.

Obligation to renegotiate rent and other terms of commercial leases

The COVID-19 Regulation prohibits any landlord from taking a prescribed action against an ‘impacted lessee’ for default due to the non-payment of rent unless:

  • The landlord and tenant have attempted to negotiate rent relief and other terms under the lease in good faith, and
  • Negotiations on the rent payable under the lease have considered the economic impacts of the COVID-19 pandemic on the tenant, and the leasing principles set out in the National Code (particularly the proportionality principle).

Dispute resolution

The COVID-19 Regulation amends the Retail Leases Act and the Conveyancing Act in the resolution of disputes arising under these Acts during the prescribed period.

For retail tenancies, the COVID-19 Regulation amends Part 8 (Dispute Resolution) of the Retail Leases Act to extend a ‘retail tenancy dispute’ to include an ‘impacted commercial lease dispute’.[1]

Commercial landlords or tenants may now lodge an impacted commercial lease dispute for mediation with the NSW Small Business Commissioner and subsequently, with the NSW Civil and Administrative Tribunal (NCAT) if mediation fails to resolve the dispute.

For commercial tenancies, any dispute must be submitted to mediation with the NSW Small Business Commissioner prior to any NCAT proceedings being commenced. A landlord must not do any of the following, unless the NSW Small Business Commissioner has certified in writing that mediation has failed to resolve the dispute:

  • Seek to recover possession of premises or land under the commercial lease
  • Terminate the commercial lease
  • Exercise or enforce any other right of the landlord under the lease.

Can a landlord still take action against a tenant for reasons unrelated to the pandemic?

Yes. The COVID-19 Regulation allows a commercial (including retail) landlord to take a prescribed action against a tenant on grounds unrelated to the economic impacts of the COVID-19 pandemic. For example, a landlord may terminate a commercial lease if the tenant has breached the lease by damaging the premises, or a landlord may take action if a tenant fails to vacate premises following the expiry of a fixed term commercial lease.

Further information / assistance regarding the issues raised in this article is available from the authors, Fiona Nelson – Partner and Wesley Hodgson – Lawyer, or your usual contact at Moray & Agnew.

The above content is commentary rather than legal advice and was prepared on the basis of applicable legislation, government programs and initiatives that were in place as of the date of publication. Given the ongoing evolution of both the COVID-19 pandemic and frequent consequential changes to the various laws and programs within all Australian states and territories, readers should seek legal advice on the current situation as applicable to their specific circumstances before taking any action in relation to the above.

[1] ‘Impacted commercial lease dispute’ means any dispute concerning the liabilities or obligations (including an obligation to pay money) under a commercial lease to which an ‘impacted lessee’ is a party. It includes liabilities or obligations which arose under the commercial lease during the prescribed period and includes a dispute regarding the renegotiation (or a failure to take part in a renegotiation) of rent payable under the commercial lease.

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