Moving a strata scheme to electronic meetings

Current strata laws require face to face meetings unless a scheme has passed a resolution to permit meetings to be carried out by alternative means (eg electronic meetings via video or teleconference). NSW Fair Trading have released guidance notes ( confirming that schemes in this position have no other option than to attend an “in-person” meeting.  This obviously presents a compliance issues for these strata schemes given the public health orders relating to social distancing. So, it seems that strata schemes need to take a proactive approach.

In terms of a practical way forward, we suggest that you consider holding a single motion meeting where the only motion on the agenda is a motion to agree to allow electronic meetings. This should be non-contentious in the current climate. The meeting will need to be carried out via a proxy vote, so that it does not contravene the relevant public health orders.

Whilst there are limits on how many proxies a person can hold, it is of course possible to adjourn and re-convene the meeting without a quorum being present which means the meeting can go ahead without a quorum as long as there is a chairperson and proxy vote in play.

If your scheme is unhappy about moving to electronic meetings or allow a proxy-only meeting to proceed, then you might consider arranging an informal catch up with lot owners to consider the alternative…. no meetings.

The long and short of it is this – if you can’t hold electronic meetings, then you may not be able to hold any meetings. No means = no decisions = chaos.

New South Wales – COVID-19 – Retail and other commercial leases regulation

The Retail And Other Commercial Leases COVID-19 Regulation 2020 (NSW) (NSW Regulations) became law on Friday 24 April 2020. With the passing of these NSW regulations, NSW is the first of the States and Territories to finally bring the National Cabinet’s “Code of Conduct” (Code) into law. We expect the other States and Territories to follow suit soon.

The NSW Regulations target “impacted lessees”, that is, a tenant who has turnover of less than $50M and is entitled to JobKeeper (eg a business where turnover drops by 30%).

If an impacted lessee breaches the lease by not paying rent / outgoings, or ceasing to trade, for the period 24 April 2020 to 24 October 2020, then a landlord is prevented from (amongst other things):

  • evicting / re-entering / terminating
  • seeking damages
  • charging interest
  • drawing on lease security
  • enforcing a personal guarantee

Even after that period has ended, the landlord still won’t be able to take any of the actions set out above for rental arrears during that relief period (ie 24 April 2020 to 24 October 2020) unless the landlord has complied with an obligation to “renegotiate” the rent and the other terms of the lease having regard to:

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

Either party can trigger a renegotiation process. Whilst this will normally be the tenant triggering the process, it is possible that landlords may also want to trigger the process, particularly for tenants likely to be “impacted lessees”, given that landlords may be restricted from exercising rights to recover arrears where they cannot show compliance with the requirement to “renegotiate”.

Each of the landlord and tenant must act in good faith during the renegotiation process. If the parties can’t agree, then there are two alternative dispute resolution processes – one for leases captured by the Retail Leases Act 1994 (NSW) (RLA), and one for all other leases – where RLA leases go through the usual dispute resolution process (ie mediation / NSW Civil & Administrative Tribunal (NCAT)) and where non-RLA leases go to a mediation facilitated by the Small Business Commissioner and failing that being successful, the usual court process (if either party instigates litigation).

The rent for an impacted lessee can’t be increased within the period 24 April 2020 to 24 October 2020 (ie any rent increase which would have normally occurred in that period is delayed until 25 October 2020 and the landlord can’t “claw back” that unpaid increase amount for that protected period). This doesn’t apply for turnover rent.

For any impacted lessee who pays fixed amounts for statutory charges (land tax, rates etc) or landlord’s insurance, that lessee is entitled to a reduction in that fixed amount if the landlord was able to get a reduction of the statutory charge / insurance. We suspect this right will be rarely used as most tenants pay outgoings on the basis of estimates, with a “wash up” at the end of the outgoings year.

The NSW Regulations don’t apply to any leases entered into on or after 25 April 2020 except if the lease came about due to the exercise of an option, or a renewal on the same terms. This means that if you want a new deal to have regard to COVID-19 and its possible impact, you will need to deal with it specifically in the lease.

Importantly, landlords and tenants can contract out of the NSW Regulations – and in reaching an agreement, parties are unrestricted as to the terms of such agreement, even if it is something that the NSW Regulations or Code would prevent (eg termination, bank guarantee draw down, rental increases etc).

The NSW Regulations also make it clear that anything a tenant does to satisfy a legal requirement in relation to COVID-19 cannot be a breach of the lease, regardless of what the lease says.

There is some ambiguous drafting in the NSW Regulations, possibly as a result of the speed with which the legislation was passed and the fact that it was never subject to the normal industry review process. As a result of the ambiguity, the NSW Regulations could apply more broadly and more flexibly than the commentary has suggested, both in terms of who might benefit (in addition to “impacted lessees”) and what might be prevented or allowed. It will be interesting to see whether landlords and tenants seek to take advantage of the various ambiguities and whether those who “push the boundaries” are ever tested in a court, or whether the leasing market just works things out for itself, as it often does.

South Australia – COVID-19 Update – Commercial Tenancies

South Australia has passed legislation in relation to commercial and retail leases to put a “stop” on the landlord taking certain actions under a commercial lease, however at the time of publishing this article, it has not yet legislated the new national Mandatory Code of Conduct (National Code).

The new legislation which has been introduced is the Covid-19 Emergency Response Act (SA) 2020 (the Act). A copy of the legislation can be found here.

The section dealing with commercial leases (section 7) has retrospective application from 30 March 2020.  The Act will cease to apply on a day determined by the Minister, or 6 months after its commencement, whichever is earlier.

The provisions of every commercial lease are taken to be modified to the extent necessary to give effect to the operation of the Act.

We summarise the position below:

Financial hardship

The provisions of the Act only apply if the tenant is facing “financial hardship” as a result of COVID-19. A tenant is taken to be in “financial hardship” if the tenant is eligible for, or receiving, a JobKeeper payment in respect of the business.

This usually means, amongst other things, in order for the Act to apply turnover will need to have reduced by as follows:

  • 30% fall in turnover (for an aggregated turnover of $1 billion or less)
  • 50% fall in turnover (for an aggregated turnover of more than $1 billion)
  • 15% fall in turnover (for ACNC-registered charities other than universities and schools).

It appears that the SA Government has chosen to be less restrictive than what was envisaged in the National Code (which limits eligibility for protection to those tenants with turnover of up to $50 million only). This of course means that more tenants in SA will be eligible for protections afforded by the Act as set out below. However,  the SA government is yet to legislate the National Code’s rent waiver and rent deferral requirements, and it is possible that when they do, the eligibility requirements may be further limited to more closely align with the National Code.

Prescribed action

If a tenant is suffering financial hardship as a result of COVID-19, the landlord cannot take any ‘prescribed action’ against the tenant if the breach consists of:

  • a failure to pay rent
  • a failure to pay outgoings
  • the business not being open for business during the hours specified in the lease
  • any other act or omission prescribed by the regulations

If the tenant is required to do something under the laws of the State as a result of COVID-19 (eg is required to close as a result of a public health order), then this is not a breach of the lease (eg an obligation to keep the shop open and trade) and the landlord cannot do any of the following:

  • terminate, evict, re-enter etc
  • claim damages
  • charge interest on unpaid rent
  • use the security bond
  • enforce a personal guarantee
  • any other remedy otherwise available to a landlord against a tenant at common law or under the laws of South Australia

If the landlord had started any of the above actions but they hadn’t been finalised by 30 March 2020, then that action is suspended until the Act no longer applies.

Rent freeze

Rent must not be increased during the prescribed period (excluding turnover rent) unless agreed between the parties.

Land tax

A tenant is not required to pay land tax or reimburse the landlord for the payment of land tax (where the lease requires a tenant to pay) during the prescribed period.

Dispute resolution

The parties can apply for mediation in relation to any disputes that have arisen as a result of COVID-19.