NSW: Requesting a commercial tenancy rent reduction (for tenants)
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 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 2018/2019.
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, a lessor is 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 a lessor cannot (amongst other things):
- evict the lessee;
- terminate the lease;
- exercise a right of re-entry to the premises or possession;
- seek damages in court or tribunal; or
- require payment of interest on, or a fee or charge on unpaid rent,
while the COVID-19 rental scheme is 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 an impacted lessee, you are eligible for rent reduction and/or waivers and deferrals.
To seek a rent reduction:
1. You are required to show that your annual turnover in 2018/2019 was under $50 million by providing documentation such as a tax return, or Business Activity Statement (BAS).
2. Contact your landlord or their managing agent in writing and invite them to negotiate.
3. Outline your circumstances and provide evidence of your eligibility criteria.
4. Negotiate your new rent arrangements and come to an agreement.
5. Write down your agreement.
6. Send the agreement to your landlord 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.