NSW Negotiating a commercial tenancy with a tenant (for landlords)
The NSW Government has passed the Retail and Other Commercial Leases (COVID-19) Regulation 2020 (“the Regulation”) under the Retail Leases Act 1994 (NSW) (“the Act”) which came into effect 24 April 2020. The Regulation has inserted and/or amended relevant sections under various acts and can be accessed here.
The Regulation is applicable to tenants with an impacted lessees being:
- A lessee who qualifies for the job keeper scheme – i.e. has experienced at least a 30% decline in turnover due to COVID-19 (or 15% in the case of not for profits), compared with a corresponding month or quarter in 2019; and
- has an annual turnover of less than $50 million in the 2018/2019 financial year.
The Regulation is applied for the prescribed period of 6 months from the date of publication being from 24 April 2020 to 24 October 2020.
Prohibitions and Restrictions relating to commercial leases
Under the Regulation, you are prohibited from taking a prescribed action against an impacted lessee for breach of the commercial lease involving:
- a failure to pay rent;
- a failure to pay outgoings; or
- the business operating under the lease not being open for business during the hours specified in the lease.
This means you cannot (amongst other things):
- evict the tenant;
- terminate the lease;
- exercise a right of re-entry to the premises or possession;
- seek damages in court or tribunal;
- seek the recovery of the whole or part of a security bond under the commercial lease; or
- require payment of interest on, or a fee or charge on unpaid rent,
while the relevant COVID-19 legislative schemes are in place.
Enactment of the Code
The Regulation further implemented the National Cabinet Mandatory Code of Conduct which imposes a set of good-faith leasing principles which amongst other things mandates that:
- Landlords must offer waivers and deferrals of rent up to 100% of the amount ordinarily payable, on a case-by-case basis, proportionate to reductions in the tenant’s trade during the COVID-19 pandemic period and a subsequent reasonable recovery period.
- Rental waivers must constitute no less than 50% of the total reduction in rent payable over the COVID-19 pandemic period. Waivers should constitute a greater proportion of the total reduction in rent where failure to do so would compromise the tenant’s capacity to fulfil their ongoing obligations under the lease. Regard must also be given to the Landlord’s financial ability to provide such additional waivers. (Tenants may waive the requirement for a 50% minimum waiver by agreement.)
- Payment of rental deferrals by the tenant must be amortised over the balance of the lease term and for a period of no less than 24 months, whichever is the greater, unless otherwise agreed by the parties.
Requesting a rent reduction
If you are a landlord with an eligible impacted lessee, if you offer or have offered rental reduction due to COVID-19 to a tenant or tenants you may be eligible to apply for COVID-19 Land Tax Relief.
To offer your tenant rent reduction:
1. Contact your tenant in writing and invite them to negotiate an agreement.
2. Negotiate your new rent arrangements
3. Write down your agreement.
4. Send the agreement to your tenant to sign a copy and return to you, and keep a record of the arrangement.
Rostron Carlyle Rojas Lawyers are here to help
If you are having difficulty reaching a settlement with your tenant or landlord, we can assist by providing qualified advice throughout the negotiation process.
Our lawyers are experienced in practical negotiations and will be able to document the negotiated agreement in a way that ensures the agreement can be relied on once the pandemic is over.