COVID-19 NEXUS ALERT #4

NSW regulations governing retail and commercial lease arrangements  

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COVID-19 ALERT #4

Posted by Allison Anthony | 01 May 2020 | COVID-19

This alert is current as at 30 April 2020 and will be updated when more information becomes available.  It is provided as general information only and not intended as legal advice.

SNAPSHOT: In our COVID-19 NEXUS Alerts #2 and #3, we looked at the Commonwealth and NSW legislative measures which had been introduced to mitigate the impact of COVID-19 pandemic on certain commercial and retail leases – with detail being proposed to follow via specific state and territory regulations being adopted. NSW has now enacted its regulations.

PURPOSE:

The Regulation (being the Retail and Other Commercial Leases (COVID-19) Regulation 2020 (NSW)) has been published to provide relief measures for certain retail and commercial leases, endorsing the Federal Government’s National Cabinet’s Code of Conduct (released on 7 April 2020).  The Regulation has been made under the Retail Leases Act 1994 (NSW) and the Conveyancing Act 1919 (NSW) (schedule 1 of the Regulation amends the Conveyancing (General) Regulation 2018).

JURISDICTION:

Applies in the State of NSW.

WHEN COMMENCE?

The Regulation came into effect on 24 April 2020 and will apply for a period of six months.

DOES THE REGULATION APPLY TO EVERY RETAIL AND COMMERCIAL TENANCY?

The Regulation only applies to the following (subject to the tenant being an ‘impacted lessee’):

  • Retail shop leases/agreements (see the Retail Leases Act 1994 (NSW) for applicable definition)
  • Leases/agreements of premises for commercial purposes

HOWEVER, the Regulation does not apply to new leases (excluding options/renewals) coming into effect after the date of commencement of the Regulation or leases under the Agricultural Tenancies Act 1990 (NSW).

WHO IS AN “IMPACTED LESSEE”?

It is important to note that the Regulation does not apply to every retail or commercial lease arrangement – it only applies to commercial/retail leases involving the following tenants (Impacted Lessee):

  • Eligible for the JobKeeper Scheme (See NEXUS COVID-19 Alert #3); AND
  • Who had a turnover for the 2018-2019 financial year which was less than $50M (there are qualifications for franchisees and corporate groups).

WHAT ARE THE PROHIBITIONS AND RESTRICTIONS ON COMMERCIAL LEASES UNDER THE REGULATION?

Under the Regulation, a lessor must exercise or enforce its rights (including termination, re-entry, seeking damages, requiring interest to be paid, recovering against a bond or any other remedy at law)  against an Impacted Lessee under a commercial lease during the prescribed six -month period for the following failures (to the extent they result from the economic impacts of the COVID-19 pandemic):

  • payment of rent or outgoings; or
  • business not being open during specified hours for business under the lease

It should be noted that after the expiry of the six-month period, a lessor cannot take enforcement action for the failures referenced above during the six-month period.

In addition, during the prescribed six-month period, rent payable by an Impacted Lessee must not be increased (other than increases based on turnover rent).

If, in respect of a premises the subject of a commercial lease with an Impacted Lessee, that lessee is required to reimburse or pay for land tax, statutory charges or Lessor insurances, and one or more of those expenses is reduced in the first instance, then the Impacted Lessee is entitled to the relevant reduction.

REQUIREMENT TO RENEGOTIATE RENT AND OTHER TERMS BEFORE TAKING ACTION

The Regulation sets out a process that is required to be followed prior to any action being taken against an Impacted Lessee for failure to pay rent.

The Regulation also provides for a mechanism that a Lessor and an Impacted Lessee must follow as a result of a request by either party to renegotiate the rent payable or other terms of the lease which includes the obligation to:

  • renegotiate in good faith; and
  • have regard to the economic impact of the COVID-19 pandemic and the leasing principles set out in the National Code of Conduct (See NEXUS COVID-19 Alert #2)

DOES THE REGULATION RESTRICT THE PARTIES FROM REACHING MUTUAL AGREEMENT ON MATTERS THE SUBJECT OF THE REGULATION?

The Regulation does not prohibit the parties from mutually agreeing an outcome concerning the relevant lease, including termination of the subject lease.

This publication is © Nexus Law Group and is for general guidance only. Legal advice should be sought before acting in relation to any specific issues.

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