Businesses, particularly in the retail sector, have suffered a drastic decline in revenue as footfall through lockdowns is decimated. Despite this, potentially strenuous lease obligations remain in place, and landlords are often in a strong bargaining position to force payment of rent because they hold the tenant’s deposit.
To address this situation, the NSW government extended the Retail and Other Commercial Leases (COVID-19) Regulation 2021 (NSW) (Regulations) which is designed to ease the burden on struggling retail and commercial tenants and encourage renegotiation of terms.
On the whole, at present, the protections under the Regulations are available between 13 July 2021 to 13 January 2022.
Who is eligible for rent relief?
To qualify for rent relief:
- the lease must have been entered into before 26 June 2021;
- the tenant’s turnover (which includes turnover from internet sales) in the 2020/21 financial year must be under $50 million. The turnover of a franchisee includes only that which is from the business conducted at the premises, while a group’s turnover is assessed collectively; and
- the tenant must also qualify for one of either the Micro-business COVID-19 Support Grant, COVID-19 NSW Business Grant, or the JobSaver Grant.
Protections for tenants
The Regulations provide several protections for eligible tenants. In particular:
- Tenants may request a renegotiation of rent, which landlords must engage with in accordance with the National Cabinet Mandatory Code of Conduct for Commercial Leasing (Code). The Code’s object is to facilitate good-faith renegotiation between landlords and tenants, where financial harms arising from Covid-19 should be shared. Importantly, the Code notes that rent reductions should be proportionate with declines in turnover experienced by the tenant.
- Landlords may not increase rent payable, other than rental components determined by reference to turnover.
- Landlords cannot seek to recover possession of premises, terminate leases, or enforce other rights provided under a lease, without first seeking mediation to resolve the dispute. A landlord may only take such steps where the Registrar has certified in writing that mediation has failed to resolve the dispute. Similarly, a court or tribunal must consider the principles in the Code before allowing a landlord to repossess property, terminate, or enforce rights under a lease.
Otherwise, the Code still expects tenants to continue to pay rent where possible. In the event of reductions, at least 50% should be a waiver with the balance deferred (unless otherwise agreed).
Impact on landlords
While landlords may be disgruntled by the renewal of the Regulations – several measures have been implemented to ease their burden. Namely:
- The government has established a $40 million hardship fund, which is to provide small commercial and retail landlords grants of up to $3,000 a month where they provide rental waivers of at least this amount.
- Landlords may have their land tax liability for 2021 waived by up to 100% if they provide that value in rent relief (with rebates available for landlords who have already paid land tax).
- Landlords may also continue to take enforcement action on grounds unrelated to economic impacts of Covid-19 (eg for damage to a premises).
