Significant changes to the temporary COVID-19 relief available to commercial lessees took effect on 1 January 2021, with the commencement of the Retail and Other Commercial Leases (COVID-19) Regulation (No 3) 2020 (NSW) ("Regulation").
COVID-19 commercial lease relief and obligations that were originally due to end on 31 December 2020, received a further extension to 28 March 2021 for eligible leases.
Retail shop lessees were the sole beneficiaries of the extension and must meet the following eligibility criteria for the relief:
- has a lease entered before 24 April 2020 that is a retail shop lease pursuant to the Retail Leases Act 1994 (NSW);
- had a total annual turnover of less than $5 million in the 2018-19 financial year; and
- has experienced a 30% (or more) decline in turnover in the December quarter 2020 compared to the December quarter in 2019. Not-for-profit organisations have a lower threshold of a 15% decline.
The eligible entity and decline in turnover tests mirror the criteria that are applicable to qualify for JobKeeper 3.0 (for the period from 4 January 2021 to 28 March 2021).
COVID-19 relief to other lessees (such as offices, industrial and large shops of more than 1,000 square metres) were not extended and concluded on 31 December 2020.
The National Code of Conduct for Commercial Tenancies Leasing Principles, which was initially introduced on 24 April 2020, has seen the following key obligations continue for qualifying leases:
- Reductions in rent: If eligible, the lessee may be entitled to negotiate a reduction in rent proportional to the reduction in turnover during that period.
- Rental Waivers: If eligible, the lessee may be entitled to a 50% rent reduction through rental waivers.
The Leasing Principles are designed to be applied on a case-by-case basis.
The Regulation does not prevent the lessor from taking 'prescribed action' on grounds not related to the economic impacts of COVID-19 so long as the lessor complies with their obligations imposed by the Regulation. 'Prescribed actions' include eviction, re-entry, recovering the premises or security bond and terminating the lease.
Lessees that remain eligible under the Regulation should make a request for rent relief from their lessor before 28 March 2021.
To benefit from the further relief, lessees will need to re-establish their eligibility under the Regulation including by providing documentary evidence to the lessor to demonstrate their eligibility.
What does this mean for Landlords?
The Regulation may be viewed as placing extended pressure on the lessor. The NSW Government has sought to provide relief to the lessor by allowing land tax concessions on relevant properties and refunds of payments to eligible lessors. This is relevant to the 2021 land tax year.
As the landlord of an eligible lessee/tenant:
- Rent must not be increased during the extended period other than by reference to turnover;
- After the conclusion of the extended relief period, prescribed action against the lessee must not be taken relating to a backdated rent increase;
- Any reduction in statutory charges (e.g. Land Tax, local council rate or insurance payable) will be passed on to the tenant;
- If obligations imposed by renegotiating rent and dispute resolution clauses have been complied with, prescribed action may be taken on the grounds of a breach consisting of any of the following:
- A failure to pay rent;
- Failure to pay outgoings; or
- The premises not being open for business during the hours specified in the lease.
- The lessee may request to renegotiate the rent payable under the terms of the impacted lease;
- Renegotiations must commence within 14 days after receiving the lessee's request (or another period agreed to by the parties).
What happens after 28 March 2021?
While no final decision has been made, the NSW Government is expected to continue discussions with stakeholders as to whether the relief would be extended into the future. New announcements can be expected to be made over the coming weeks.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.