COVID-19: much anticipated commercial tenancy regulations released in NSW.

On 24 April 2020, the New South Wales Government passed the Retail and Other Commercial Leases (COVID-19) Regulation 2020 (NSW)(Regulations).

The Regulations give effect to the National Cabinet’s mandatory Code of Conduct for commercial tenancies (Code). As outlined in our recent blog, the Code includes overarching principles to provide landlords and tenants with a framework to help navigate through the changes to the leasing landscape during COVID-19.

Who do the Regulations apply to and for how long?

The Regulations are intended to apply from 24 April 2020 to 24 October 2020 (prescribed period) and protect an ‘impacted lessee’ in various ways.

An ‘impacted lessee’ is defined in the Regulations as a tenant:

• that qualifies for the JobKeeper scheme; and
• has a turnover of less than $50 million in the 2018-19 financial year.

Where the tenant is part of a corporate group, turnover is calculated with reference to the turnover of the whole group. Additionally, turnover includes internet sales.

Limits imposed on landlord powers.

During the prescribed period under the Regulations, the landlord is prohibited from:

• terminating the lease;
• taking possession of the premises;
• drawing down on a security deposit or bank guarantee;
• pursuing a guarantor; and
• increasing the rent.

The above prohibitions protect an ‘impacted lessee’ even where that party fails to:

• pay rent or outgoings; or
• keep the premises open during the prescribed hours under the lease.

Furthermore, any act or omission by an ’impacted lessee’ that is required by law in response to the COVID-19 pandemic will not:

• amount to a breach of a commercial lease; and
• constitute grounds for termination or the taking of any prescribed action.

Obligation to negotiate.

The Regulations state that if a request is made by either party, the parties must renegotiate the rent payable, in good faith, having regard to:

• the economic impacts of the COVID-19 pandemic; and
• the leasing principles in the Code.

The parties can however, contract out of the Regulations.

Where parties are unable to come to an agreement, the matter will be referred to the Small Business Commissioner for mediation.

Nothing in the Regulations is intended to prevent landlords from taking legal action against tenants on grounds not related to the economic impacts of the COVID-19 pandemic (eg pre-existing breach).

Formalising revised rent agreements.

Any commercial agreement reached between the parties should be documented in a variation deed to ensure it is binding between the parties and their successors.

The variation deed should include provisions regarding:

• the period that the variation applies, eg during the prescribed period of 24 April 2020 to 24 October 2020;
• the amount of, and the formula for the payment of, rent to be paid during the 6 months;
• the apportionment between waiver and deferral;
• the timetable for deferral repayment;
• details of any financial information required by the landlord for the purposes of calculating the rent relief; and
• confidentiality.

We can help.

If you are in the process of renegotiating your lease, we can help you engage in good faith negotiations in line with the Regulations and the principles of the Code, and assist you to draft a variation deed which covers all of the important points listed above.

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