By way of update, South Australia has repealed the sections relating to commercial leases in the COVID Act and Regulations that we advised on earlier and have replaced them.
Please see the new COVID Emergency Response Act 2020 (the Act) and COVID-19 Emergency Response (Commercial Leases No 2) Regulations 2020 (the Regulations).
The Act and Regulations have retrospective application and apply from 30 March 2020 and end on 30 September 2020.
The Act now provides for the Governor to make regulations regarding commercial leases and all the operative provisions regarding commercial leases are in the Regulations.
The main difference seems to be a limitation on which leases the regulations apply to and the imposition of a turnover threshold in relation to who is an ‘affected tenant’, which wasn’t included previously. There are also some additional dispute resolution clauses.
For ease of reference, we have set out below the updated position in South Australia.
The Regulations do not apply to a lease entered into after the commencement of the prescribed period (ie after 30 March 2020), unless that lease was entered into as a result of an option or an extension / renewal on similar terms.
The provisions of every commercial lease is taken to be modified to the extent necessary to give effect to the operation of the Act.
Obligation to negotiate in good faith
The parties to a commercial lease must make a genuine attempt to negotiate in good faith the rent payable and any other terms of the lease. This seems to apply to all leases (whether or not the tenant is an affected tenant – see below).
An ‘affected tenant’ is defined to be a tenant that is suffering financial hardship as a result of COVID-19 (ie is eligible for JobKeeper) and has a turnover of less and $50 million (there are some additional provisions regarding how to calculate turnover).
If a tenant is an affected tenant, 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
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 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 law of this State
Continuing prescribed action
If the landlord had started any of the above actions during the period 30 March 2020 and 9 April 2020 but they had not been finalised, then that action is suspended until the Act no longer applies.
Interestingly, this seems to apply even if the tenant is not an affected lessee, so long as the ‘lessee is suffering financial hardship as a result of the COVID-19 pandemic’ (ie eligible for JobKeeper).
If a tenant is an affected tenant, the rent must not be increased during the prescribed period (excluding turnover rent) unless agreed between the parties.
If a tenant is an affected tenant, 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.
The parties can apply for mediation and the Court (if mediation is unsuccessful) in relation to any disputes that have arisen as a result of COVID-19. However a tenant cannot apply for mediation unless it is an affected tenant.