Last year, NSW's COVID-19 leasing laws had scheduled the “prescribed period” to end on 13 January 2022. For those who remember, back on 13 July 2021, the prescribed period was legislated to end in August 2021.
Things changed, and things have again changed. On 13 January 2022, the NSW Government made new COVID-19 laws extending the prescribed period until 13 March 2022 – Retail and Other Commercial Leases (COVID-19) Regulation 2022.
The ongoing moratorium
Like previous COVID-19 laws, the 2022 laws protect “impacted lessees”. These are tenants who qualify, or would have qualified, for a government COVID-19 payment. Also, for a tenant to remain impacted after 30 November 2021, the tenant's FY2020-2021 turnover (including group turnover) needs to be less than $5 million.
The moratorium prevents landlords from taking “prescribed actions” against impacted tenants for “prescribed breaches”, where the breaches occur during the prescribed period. Prescribed breaches are not paying rent or outgoings, or not trading during the prescribed period. Most relevantly, prescribed actions include terminating a lease or drawing on a bank guarantee.
Exceptions to the moratorium – when can a landlord exercise its rights?
The moratoriums are not absolute, having four exceptions. If any exception is satisfied, a landlord can exercise rights for prescribed breaches.
The first two exceptions are straightforward. The first exception is that the legislation does not protect tenants under leases entered after 26 June 2021. The second exception is where the relevant breach is not a “prescribed breach”. For example, the breach may concern a tenant's failure to repair, or failure to provide a bank guarantee, or if the breach occurred outside of a prescribed period. In all these situations, the landlord can enforce its lease.
The third exception is where landlords and tenants agree upon the landlord taking prescribed actions in certain circumstances. This usually occurs where landlords and tenants agree on a COVID-19 leasing regime that covers the prescribed period. If the tenant does not honour the agreement, the landlord can exercise its usual rights. Because these are often private and informal agreements, it is worth documenting that the landlord can exercise its rights if the tenant does not comply.
The fourth exception is cumbersome, involving renegotiation and formal mediation, which can run in tandem. Compared with the third exception, this exception requires more work and time, and is best left for the harder cases.
The renegotiation procedure is specifically legislated and involves the parties trying to reach an agreed outcome. The tenant must demonstrate its impacted lessee status, and good faith is mandated. When renegotiating, consideration must be given to the pandemic's effect on the tenant. For this purpose, any government relief is treated as part of the tenant's turnover. Also, the National Code of Conduct must be considered – the Code is not given legal force, but serves as a guide.
Mediation, supervised by the NSW Small Business Commissioner, is also needed. Before taking a prescribed action under this exception, the mediator needs to certify that mediation failed and that the landlord has complied with its renegotiation obligations. Also, a landlord cannot wait until 13 March 2022 to bypass this obligation. Mediation will remain necessary.
Considerations for landlords and tenants
- For any new renegotiations, including private agreements (see the third exception above), consider including a term allowing the landlord to enforce its rights if the tenant does not comply. While landlords may not want to terminate, having the right is worthwhile.
- It seems likely that the prescribed period will continue to be extended, especially if new lockdowns occur or as other COVID-19 variants surface. To avoid ongoing renegotiations, there is benefit in adding a term that the renegotiated position will apply for any extended or new prescribed period.
- When considering assignments, consider the benefit of having a lease entered after 26 June 2021, or at least a landlord's ability to enforce for prescribed breaches. This can be achieved by the landlord's right to enforce being included as a term of the assignment or entering into a new lease with the new tenant.
If you have any questions about the new laws or how these changes may affect you, please contact us or send us your enquiry here.
This publication does not deal with every important topic or change in law and is not intended to be relied upon as a substitute for legal or other advice that may be relevant to the reader's specific circumstances. If you have found this publication of interest and would like to know more or wish to obtain legal advice relevant to your circumstances please contact one of the named individuals listed.