The Commercial Leasing Code of Conduct was introduced to help balance the interests of landlords and tenants and provide relief to those suffering financial stress as a direct result of the COVID-19 pandemic. Commercial Litigation Lawyer, Georgia Taylor, discusses the approach NSW has taken.
Each state and territory have taken a different approach to introducing the new legislation which may have caused landlords and tenants some confusion. Here’s what you need to know about the Regulations for the COVID-19 Commercial Leasing Code of Conduct for New South Wales.
NSW legislated the National Cabinet Mandatory Code of Conduct (the code) on 24 April 2020 (soon after the Prime Minister’s announcement) as the Retail and Other Commercial Leases (COVID-19) Regulation 2020 (NSW Regulation). The NSW Regulation was one of the first to pass through the State and Territory parliaments, a welcomed surety for those affected by the COVID-19 pandemic.
Who qualifies for relief?
The NSW government defined a lessee as an “Impacted lessee” for the purposes of the NSW Regulation, if a lessee qualifies for the Job Keeper Scheme and had a turnover of less than $50 million in the 2018/2019 financial year, keeping in line with the Code.
Importantly, the NSW Regulation defines a “commercial lease” as:
- a retail shop lease (excluding any lease entered into after the commencement of the NSW Regulation);
- a lease under the Agricultural Tenancies Act 1990; or
- a commercial lease within the meaning of Schedule 5 to the Conveyancing (General) Regulation 2018.
If your lease falls within any of these categories, your lease may be protected by the NSW Regulation.
What is the ‘prescribed period’?
The prescribed period means the period ending six months after the NSW regulation commences. The NSW Regulation commenced on 24 April 2020; therefore, the prescribed period will end on 24 October 2020.
What restrictions apply?
A landlord must not take any prescribed action against a lessee for:
- Failure to pay rent;
- Failure to pay outgoings; or
- Not opening the business during the hours specified in the lease.
The NSW Regulation also prescribes, pursuant to the Code, that:
- Rent under a prescribed lease must not be increased;
- A landlord must not, during or after the prescribed period, take any prescribed action regarding an increase in rent;
- if the lessee is to pay a fixed rate for land tax or other statutory charge (i.e. council rates), and that amount is reduced by way of a concession to the landlord, the lessee is exempt from that fixed rate to the extent of the reduction provided to the landlord.
What is a ‘prescribed action’?
It’s important to understand what a prescribed action is so that an affected lessee knows what a landlord can and cannot do during the prescribed period. NSW have defined a prescribed action as:
- eviction of the lessee from premises or land the subject of the commercial lease,
- exercising a right of re-entry to premises or land the subject of the commercial lease;
- recovery of the premises or land,
- distraint of goods,
- forfeiture,
- damages,
- requiring a payment of interest on, or a fee or charge related to, unpaid rent otherwise payable by a lessee;
- recovery of the whole or part of a security bond under the commercial lease,
- performance of obligations by the lessee or any other person pursuant to a guarantee under the commercial lease,
- possession,
- termination of the lease, or
- any other remedy otherwise available to a lessor against a lessee at common law or under the law of this State.
Obligations to renegotiate rent and terms of commercial lease
An impacted lessee may request the other parties to that lease renegotiate the rent payable and any other terms of the commercial lease. The other parties and the impacted lessee must renegotiate a lease in good faith.
Whilst the NSW regulation does not specifically legislate the requirements of the Code, it notes that parties must reference leasing principle numbers 3-5, 7-10 and 12 during negotiations. These parts of the Code specify that:
- Rent is to be reduced on a case-by-case basis, based on the reduction of the lessee’s trade during the prescribed period;
- A landlord must offer a reduction in rent in the form of waivers and deferrals of up to 100% of the amount payable under the lease;
- Rental waivers must be no less than 50% of the reduction received by the lessee;
- Payment of rental deferrals by the lessee must be amortised over the balance of the lease and/or for a minimum period of 24 months, whichever is greater.
Dispute resolution
NSW has extended the provisions of Part 8 of the Retail Leases Act 1994 (Retail Leases Act), (dispute resolution provisions) to include disputes under the NSW regulation. Queensland has taken a different approach by developing a new system to deal with disputes under the QLD regulation.
The Retail Leases Act administers a mediation process before a mediator of a retail tenancy dispute. This process must be undertaken before proceeding to any Court that is able to hear a dispute of its nature.
If you cannot come to an agreement with your lessee or landlord regarding a reduction in rent under the new NSW Regulation, you can make an application to the registrar of retail tenancy disputes for the purposes of undertaking a mediation with the NSW Government Small Business Commissioner’s office.
Your next steps
No matter your current position, if you qualify for relief under the NSW regulation it is important that you are proactive and take the necessary steps to commence negotiations with your landlord or tenant.
The legislators have made allowances for those parties who can’t agree and who will need a third party to enforce their respective rights. With likely thousands of eligible applicants, many of those undoubtedly under financial strain, we expect a high volume of cases to be referred to the dispute resolution process. To ensure your matter is dealt with quickly, it is vital you initiate the steps as soon as possible.
To be ready for your negotiations, you should have available (where applicable):
- A copy of the lease;
- Job Keeper acceptance;
- Proof of turnover;
- Financial records proving downturn in turnover (monthly would be appropriate);
- Proof of government and financial institution concessions (e.g. mortgage stops and land tax deductions);
- Proof of payments made from the date of the pandemic.
How can Attwood Marshall Lawyers help?
The QLD and NSW Regulations brings much-needed certainty for tenants and landlords. The Regulation provides a pathway for parties to negotiate in good faith and move forward in uncertain times. However, our experience is that both landlords and tenants are struggling to properly understand the legislation and there are many grey areas in how all issues are to be resolved. It is important that both sides understand the impact of COVID-19 on all concerned, and do their best to achieve an outcome that everyone can live with. All businesses and tenancies are different, as are the leases involved, and many will have their own unique issues. There is no “one size fits all” solution.
Want to know what is happening across the border? See our blog on the QLD legislation here.
Whilst there are restrictions on legal representation during the formal processes, it is still imperative for parties to obtain their own legal advice and guidance. Our experienced property and commercial lawyers can provide you with expert independent legal advice about your specific circumstances as a tenant or landlord. Attwood Marshall Lawyers can review your lease, negotiate on your behalf, settle disputes or take legal actions if your rights are compromised.
