COVID-19 | Update: NSW extends rent relief scheme for impacted lessees

In light of the ongoing COVID-19 pandemic, the NSW government has extended the expiry date of the ‘prescribed period’ under retail and commercial tenancy laws to 31 December 2020. The Retail and Other Commercial Leases (COVID-19) Regulation (No 2) 2020 (Updated Regulations) have been introduced in NSW, with the effect of repealing and remaking the Retail and other Commercial Leases (COVID-19 – Regulations 2020) (Earlier Regulations).

What has changed?

The Updated Regulations incorporate the provisions of the Earlier Regulations, subject to a number of amendments that are summarised below:

• Prescribed Period: The prescribed period is now 24 April 2020 to 31 December 2020. With the Updated Regulations now expiring on 25 April 2021, it is conceivable could be further extended.
• Prescribed Action: A landlord must not ‘during the prescribed period’ take any prescribed action against an impacted lessee on the ground of a breach of the impacted lease occurring during the prescribed period due to:
  • a failure to pay rent or outgoings; or
  • the business operation under the lease not being open for business during the hours specified in the lease.

The introduction of the words ‘during the prescribed period’ has the effect that any prescribed action to be taken by a landlord must be delayed until after the prescribed period expires.

The restrictions imposed on landlords in respect of not taking any ‘prescribed action’ during the prescribed period have been amended to confirm that such restrictions are only in respect of an ‘impacted lease’, and not all leases.

If any renegotiation is commenced by a landlord and an impacted lessee does not participate in such negotiations, or fails to produce evidence that they are an impacted lessee, it would appear that the landlord may then take a ‘prescribed action’ such as calling on a bank guarantee.

• Rent relief: Any request for renegotiation of rent and other terms of the lease:
  • must commence within 14 days of receiving the request from the other party, or any other period agreed between the parties. Whilst a timeframe has been imposed for commencement of such negotiations there is still no timeframe imposed to reach any agreement; and
  • cannot be in respect of any period where rent relief has already been provided. This will prevent tenants seeking further relief in respect of any relief previously negotiated between the parties.
• Ongoing negotiations: To avoid any doubt:
  • a renegotiation that commences under the Updated Regulations, but is not concluded before the expiry of the prescribed period, may be continued and concluded after the expiry of the Updated Regulations; and
  • any renegotiation under the Earlier Regulations that commenced, but was not concluded before the commencement of the Updated Regulations, may continue. This will of course give rise to parties proving that such negotiations did indeed commence.

What has not changed?

$50m and JobKeeper eligibility: An ‘impacted lessee’ must still be an SME and qualify for JobKeeper, however the ‘impacted lessee’ must re-establish eligibility and produce evidence that the lessee is an ‘impacted lessee’. Please refer to our previous article which provides a summary of the Earlier Regulations that otherwise remain unchanged subject to the amendments outlined in this article.

Rent relief: In renegotiating the rent applicable during the prescribed period, the parties must still have regard to the economic impacts of COVID-19 and the leasing principles in the National Code of Conduct.

Non COVID-19 related prescribed action allowed: Nothing prohibits a landlord from taking prescribed action on grounds not related to the economic impacts of the COVID-19 pandemic.

Parties must attempt mediation before Landlord can enforce: A landlord may not seek to recover possession of premises under an impacted lease, terminate an impacted lease or exercise or enforce any other right of the landlord under an impacted lease unless and until the Small Business Commissioner has certified in writing that mediation offered to be conducted by the Small Business Commissioner has failed to resolve the dispute and given reasons for the failure.

No increase in rent: As a reminder, rent payable under an impacted lease must not be increased during the prescribed period other than rent, or any component of rent, determined by reference to turnover.

How can we help?

At Gadens, our Property Team is well equipped to advise and assist clients that are dealing with any current rent relief negotiations including attendance at mediation. We are here to help and invite you to contact our office should you require any assistance.

For details of all our COVID-19 tips and updates, visit the Gadens COVID-19 Hub.

Authored by:

Archie Smith, Partner
Belinda Drivas, Senior Associate