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COVID-19 Regulations Relating to Leasing II – Has the Stalemate Been Broken?

Luke Mitchell, ||

This latest blog is a follow up from my blog COVID-19 Regulations 2021 for Retail and Commercial Leasing – The Great Stalemate!

Thankfully, the government has now introduced a follow up set of regulations which give landlords and tenants significantly more clarity when faced with claims for rent relief – as compared to a fortnight ago.

I will now step you through the updated Retail and Other Commercial Leases (COVID-19) Regulation 2021 (NSW) (‘updated 2021 Regulation’).

What is the prescribed period?

The prescribed period has been extended and is now between 13 July 2021 and 13 January 2022.

What is an impacted lessee?

Under the updated 2021 Regulation, the qualifications of an impacted lessee remain much the same: you must have a turnover of less than $50 million in the 2020-2021 financial year and qualify for the 2021 COVID-19 Micro-business Grant, the 2021 COVID-19 Business Grant, or the 2021 JobSaver Payment.

The tenant must have entered into the lease before 26 June 2021 and must provide a statement as well as evidence that they are an impacted lessee. This information may be given before, or as soon as practicable after, a breach of the lease occurs and must be given within a reasonable time after it has been requested by your landlord.

Rent Relief

Landlords must not increase the rent payable by an impacted lessee during the prescribed period. However, this does not apply to rent, or a component of rent, determined by reference to turnover.

The center piece of the updated 2021 Regulation provides that a party to an impacted lease can request renegotiation of the rent payable – in a throwback to the 2020 version of the regulations.

Renegotiations must be made in good faith and within 14 days of receiving the request. Significantly, not only must the economic impact of COVID-19 be considered, but renegotiations must consider the leasing principles set out in the National Code of Conduct.

More specifically, the relevant leasing principles include the following:

  • Landlords must offer tenants proportionate reductions in rent payable in the form of waivers and deferrals based on the reduction in the tenant’s trade and provide a subsequent reasonable recovery period.
  • These waivers must constitute no less than 50% of the total reduction in rent payable and no interest, fees or other charges can be applied to such waivers or deferrals.

Note that parties to an impacted lease may make a second or subsequent request for renegotiation provided that it is made within the prescribed period and does not relate to a period already covered by previous renegotiations.

Prescribed Action

A landlord cannot take prescribed action against an impacted lessee for a prescribed breach (that is, a failure to pay rent or outgoings, or a failure to trade during the hours stipulated in the lease) during the prescribed period unless the parties have attempted mediation and received a certificate evidencing that it has failed or have renegotiated the rent as outlined above.

The updated 2021 Regulation provides that the Tribunal or a court must also consider the leasing principles set out in the National Code of Conduct when making a decision or order in relation to the following:

  • The recovery of possession of premises or land from an impacted lessee,
  • The termination of an impacted lease by a lessor,
  • The exercise or enforcement of another right of a lessor under an impacted lease.

We must applaud our government for providing more clarity for landlords and tenants – however based on my experience there will be many situations where parties will reach a deadlock in negotiations unless they are ready to compromise.

If you need guidance through this mess, please reach out to me.

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