The NSW Government published the Retail and Other Commercial Leases (COVID-19) Regulation 2020 on 24 April 2020. The Regulation gives effect to the National Cabinet Mandatory Code of Conduct – SME Commercial Leasing Principles During COVID-19 adopted by the National Cabinet on 7 April 2020.
Aim of the Regulation
The Regulation aims to –
prohibit and regulate the exercise of certain rights of lessors relating to the enforcement of certain commercial leases during the COVID-19 pandemic period; and
require in response to the COVID-19 pandemic, that lessors and lessees renegotiate the rent and other terms of those commercial leases in good faith having regard to the leasing principles set out in the National Code of Conduct before any legal enforcement action of the terms of those commercial leases can be commenced.
Commencement and Prescribed Period
The Regulation commenced on 24 April 2020 and lasts for a period of 6 months.
Application ('impacted lessees')
The Regulation applies to 'impacted lessees' which is defined as a lessee:
who qualifies for the jobkeeper scheme; and
where the following turnover in the 2018-2019 financial year was less than $50 million.
Prohibitions and Restrictions
If a lessee is an impacted lessee:
a lessor must not take any prescribed action against the lessee on the grounds of a breach of the commercial lease consisting of –
a failure to pay rent; or
a failure to pay outgoings; or
the business operating under the lease not being open for business during the hours specified in the lease.
a lessor must not increase the rent payable.
a lessor must not, after the prescribed period, take any prescribed action against the lessee on the grounds of a breach consisting of a failure to pay an amount equivalent to or representing the rent increase amount
and is required by a provision of a commercial lease to pay an amount of land tax, statutory charges or insurance payable, and the amount of the land tax, statutory charges or insurance payable is reduced, the impacted lessee is exempted from the operation of the provision to the extent of the reduction.
An act or omission of a lessee required under Commonwealth or State law in response to the COVID-19 pandemic –
is taken not to amount to a breach of a commercial lease; and
does not constitute grounds for termination of the lease or taking of any prescribed action by the lessor against the lessee.
Obligation to Renegotiate
If an impacted lessee is party to a commercial lease, any party to the lease may request the other parties to renegotiate the rent payable under, and other terms of the commercial lease. Parties are then to renegotiate in good faith, having regard to –
the economic impacts of the COVID-19 pandemic; and
the leasing principles set out in the National Code of Conduct.
The Regulation advises to give particular regard to leasing principle No. 3, when renegotiating the rent payable under the commercial lease. Leasing principle No. 3 requires landlords to offer rent reductions, in the form of waivers and/or deferrals of rent, proportionate to the lessees' reductions in turnover.
If you have any questions about the National Code of Conduct, the new NSW Regulation and its provisions or how to best navigate your leasing negotiations, please feel free to contact me.