Author: Nicole Caryofyllis

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.

Tasmania has acted first in relation to introducing laws regarding rental and eviction relief in Australia as a result of Covid-19 impacts. The Covid-19 Disease Emergency (Miscellaneous Provisions) Act (Tas) 2020 (Covid-19 Emergency Act) is in force and valid from 27 March 2020.

Eviction freeze

From a commercial property perspective, the key points of the Tasmanian Covid-19 Emergency Act are:

• the new legislation contemplates a prohibition on termination and rental increases for certain leases – this appears to be intended to cover commercial/retail (and potentially other non-residential) leases
• the Minister may, by notice, prohibit termination or rental increases for leases within a class of lease in specified circumstances during the “emergency period” – we do not yet know what “class of leases” are affected
• the emergency period (ie the eviction “freeze period” will be at least 120 days from commencement of the Act, but it might be longer – we do not yet know what the period will be)
• the Act doesn’t appear to provide for any form of rent abatement (with the effect presumably to be that any unpaid rent will continue to accrue throughout the emergency period) – this is likely to be of limited benefit to tenants in the long run if revenue has been seriously affected by Covid-19 (ie these measures might just delay the inevitable termination of the lease if the arrears can’t be paid at the end of the “freeze” period).
• the Act does not (at this stage) appear to restrict the landlord from drawing down on bank guarantees for a failure to pay rent during the emergency period, and it may be that landlords do choose to use the security to protect themselves for the arrears during any freeze period.

Note that the “emergency period” during which specific protections appear to apply starts on (and from) the date of commencement of the Covid-19 Emergency Act, therefore arguably a termination notice issued prior to 27 March 2020 should remain valid.

Land tax measures

The Tasmanian Government has also announced that Land Tax will be waived for commercial property for the 2020-21 financial year, where the business owner:

• is liable for the land tax; and
• can demonstrate that their business operations have been affected by COVID-19.

It’s unclear at the moment who might be captured by the definition of ‘business owner’ but we expect that it would target commercial tenants who are liable to pay land tax via outgoings under their lease.

We will update this article as further developments arise.

The NSW Government has passed a Bill this morning amending various existing legislation to create special regulation-making powers.  In short (and most relevant to commercial property) is that it allows the Government to make regulations which may:

• prohibit a landlord terminating or exercising another right under a lease
• exempt a tenant from compliance with certain obligations under a lease (presumably this will focus on rent).

These powers will apply to leases made under the Retail Leases Act and more broadly any legislation relating to “the leasing of premises or land for commercial purposes”.  These powers could therefore extend to non-retail leases.

We will update you when regulations are made and when we know which types of tenancies will be affected and how.

 

Partner, Leisha de Aboitiz and Lawyer, Rachael Bass, recently wrote an article published by the REINSW in relation to recent NSW Government reforms on flammable cladding.  Read the article here:

REINSW – The fiery fallout of combustible cladding

New combustible cladding regulations commence in NSW today.  The regulations will impact you if you (wholly or partially) own a building which contains combustible cladding and is used as a residence, accommodation or some other use where people may sleep or gather e.g. hospital, school, night club, aged care building etc. The regulations will not affect certain classes of buildings (eg commercial office buildings), but will capture strata schemes and mixed use buildings which have an affected component. If your building is affected, then you may need to register your building. Further information on the new laws and applicable timeframes for compliance can be found here – https://www.planning.nsw.gov.au/Policy-and-Legislation/Buildings/Combustible-cladding.

You should also be aware that certain aluminium composite panels were banned in NSW on 15 August 2018 across most building classes (eg commercial as well as residential).  If your building is affected by the ban you may be ordered to rectify the building.  Further information on the product use ban can be found here – https://www.fairtrading.nsw.gov.au/buying-products-and-services/product-and-service-safety/building-products/aluminium-composite-panel-ban.  New combustible cladding laws have recently been introduced in most jurisdictions of Australia, and audits are being carried out Nationally. The nature and extent of regulation varies, however certain States are clearly taking a more proactive (and robust) approach to cladding regulation.

If you think that your building may be affected, then you should consider your compliance obligations in relation to the new laws as well as any related contractual obligations you may have (eg under any leases or insurance policies for the building).

For further information on new combustible cladding laws and your obligations as a private building owner please contact Leisha de Aboitiz or Rachael Bass.

 

Massons are tracking the progress of two related strata renewals which are currently being considered by the Land & Environment Court. They relate to the acquisition of 2 x strata schemes sitting side by side in Macquarie Park. The proceedings are only in the initial stages. To date, there have been some interlocutory proceedings regarding applications for dissenting owners and the purchaser/developer to be joined to the proceedings and related cost considerations. The outcome of the interlocutory proceedings are not particularly surprising – all parties were joined and it was held that the owners corporation would be required to meet the costs incurred by the dissenting owner in bringing the Notice of Motion (per s188 of the SSDA). It will be interesting to watch this test case unfold.

You can read the decisions on the NSW Caselaw website here:

https://www.caselaw.nsw.gov.au/decision/5a8a56c7e4b087b8baa8643a

https://www.caselaw.nsw.gov.au/decision/5a8a1f62e4b058596cbae49b

 

The Conveyancing (Sale of Land) Regulation 2017 was published on 28 July and will come into effect on 1 September 2017. The regulations contain changes to vendor disclosure requirements and include new prescribed documents that must be included in contracts for the sale of commercial or residential properties. It is important to stay up to date with these changes to avoid a potential breach that could occur if you fail to include prescribed documents or warning statements.

Changes to Schedule 1 of the regulations contain new provisions for sewerage diagrams and strata by-laws, and have also introduced new warning requirements for loose-fill asbestos in certain properties.

Sewerage Service Diagrams showing the location of sewer lines in relation to the property are now required in addition to previously required sewerage infrastructure location diagrams (or ‘service location diagrams’), whenever both are available from the relevant authority. The two diagrams must be attached to the contract as prescribed documents.

In addition to this, a new warning requirement has been added with the introduction of a ‘loose-fill asbestos insulation warning’. This warning must be attached to the contract to alert parties to the possibility of Loose Fill Asbestos being present in the property and will be required in contracts exchanged on or after 1 September 2017. The previously required warning statement relating to Swimming Pools is no longer in the Regulation.

If you fail to include one of these prescribed documents in the contract, the purchaser is given a right to rescind the contract within 14 days of exchange.

The changes also relate to contracts involving strata schemes. The regulations now require that all strata by-laws in place for a strata scheme must be attached to the contract. Previously, only some exclusive-use by-laws needed to be included. Schedule 3 has also been amended to include new adverse affectations that a vendor must disclose, or otherwise warrant that they do not affect the land. These include situations relating to Strata Renewal, where the owners’ corporation have established a committee to conduct further investigation on a strata renewal proposal, but there are no minutes recording this resolution. Other adverse affectations added include orders under s121B of the Environmental Protection and Assessment Act 1979 (Item 12), and Rights of way under s235C of the Mining Act 1992 (Item 17).

For further information on these changes or the regulations contact Jodie Masson or Kate Clissold.

Under the Retail Leases Act 2003 (Vic) (RLA) “retail premises” are defined to mean premises that are used, or are to be used, wholly or predominately for the sale or hire of goods by retail or the retail provision of services.

So what does this actually mean?

Last year, the case of IMCC Group (Australia) Pty Ltd v CB Cold Storage Ltd [2017] VSCA 178, made it clear that the ‘ultimate consumer’ test is now the principle test to be applied to determine whether a tenant is undertaking a ‘retail’ business for the purposes of the RLA.

As a result of this case, a large number of leases that were previously not thought to be retail, will now be governed by the RLA.

What is the ultimate consumer test?

Case law has established that “retail” essentially means the provision of a good or service to the ultimate consumer for a fee or reward.

The “ultimate consumer” does not need to be a member of the public. In other words, it does not matter if the good or service is provided to another business who uses that service for their own business purpose. A business to business transaction could result in retail business.

What does this mean?

In short, if the answer to either of the following questions is “yes”, then it is likely that the business will be a retail business and the RLA will apply:

• are the goods or services consumer by the purchaser; or
• are the goods or services being used by the purchaser as input in the purchaser’s business.

Accordingly, this means that:

• most businesses that provide services in Victoria will be found to be “retail” and will be governed by the RLA (unless another exemption applies); and
• business that supply goods to a second business that use those goods as input into the second business are likely to be “retail”.

It is important to note that including an acknowledgment in your lease that the RLA does not apply will not save you from application of the RLA.

Implications for landlord and tenants

Landlords and tenants should carefully review any leases that may be subject to the RLA and consider if the RLA will apply.

The RLA is generally considered to be “tenant friendly”. In other words, tenants will usually have more protections under a lease governed by the RLA, than one which isn’t.

For those leases that are already on foot, some key things for both parties to consider are:

• Under the RLA a tenant is not required to pay for land tax. Landlords of leases that are now clearly captured by the RLA may find that their tenants are now requesting refunds for land tax already paid
• If the term of the lease is less than 5 years, the RLA automatically extends the lease to a 5-year term

For those leases that are currently being negotiated, the parties should carefully consider if the RLA will apply and if so, take the provisions of the RLA into account when negotiating clauses. Landlords may wish to narrow the permitted use to make it clear that premises cannot be used for a retail purpose.

If your lease was entered into prior to commencement of the RLA in 2003, it is good idea to speak to a lawyer before agreeing to any variation of that lease (as a variation may result in the RLA applying).

If you suspect that any of your Victorian leases may now be found to be “retail”, and would like further advice on the implications under the RLA, please contact us.

1. Why are these new laws being introduced?
1. 为何有新法律出台？

The new laws are intended to assist in the collection of foreign resident CGT liabilities in relation to both direct and indirect Australian real property interests. Historically voluntary compliance has been very low, and enforcement procedures have been costly and difficult to undertake. The new laws (quite cleverly) push responsibility for implementation and enforcement onto purchasers, making purchasers responsible for withholding the non-final CGT amount from the purchase price (ie 10%) and paying it directly to the Australian Taxation Office (ATO). This will force foreign resident vendors to comply with their CGT liabilities, and will prompt them to either take preventative steps to reduce or avoid the 10% withholding tax before it occurs, or to seek an adjustment or credit when they lodge their income tax return (eg similar to pay as you go withholding from salary and wages in Australia).

新法出台后，海外居民在澳置业的直接或间接获利，都会被政府强制收缴增值税税。过去自愿纳税的人不多，政府又监管不力，旧法的执法程序困难，执法成本很高。新的法律（非常聪明地）资本增值税的收缴任务推给了买房人。买家从房屋购买价中直接缴纳税款，并转交给澳大利亚税务局（ATO）。这一规定将迫使海外居民履行其纳税义务，之前减少缴纳，甚至逃税的伎俩从此失效。10%的预扣所得税，或者在进行收入退税的时候进行调整（比如从工资中扣税）。

2. How does it work?
2. 如何操作？

The purchaser of a relevant CGT asset must withhold 10% of the market value of the asset from the purchase price and pay that amount to the ATO on or before the day that the asset is acquired (ie the day of settlement), unless the purchaser is in receipt of a clearance certificate, a notice of variation, or a vendor declaration.

如果没有免税凭证、税收变更通知或者卖家声明，买家必须在购买价中支付房产市场价值10%的增值税，并在交易当天或者之前转交给ATO。

What types of transactions will be affected?
哪些交易会受到影响？

The new regime will apply to:

新的制度将实施于：

(a) direct transactions relating to taxable Australian real property (eg land, buildings, lease premiums, mining, quarrying and prospecting rights), including options or rights to acquire taxable real property interests; and
与澳大利亚不动产（如：土地、建筑、租赁保证、矿产、采石和探矿权）纳税相关的交易，包括不动产期权的获利，以及

(b) indirect transactions relating to interests in Australian entities where the majority assets of the relevant entity consist of the kinds of real property interests identified in part (a) above.
与澳大利亚公司相关的，包括以上各不动产类型的间接交易。

3. What types of transactions are excluded from the regime?
3. 哪些交易不包含制度之内？

Some examples of acquisitions not caught by the new regime are:
一些案不包含在新法律之内：

(a) real property transactions where the “market value”[i] is below AUD 2 million;
不动产的“市场价值”在澳币200万以下；这里需要注意，政府会评估物业市场价值，不会允许买卖双方私下压低价格的逃税行为。

(b) transactions listed on an approved stock exchange; and
房产交易是获批的股票交易的一部分；

(c) acquisitions where the foreign resident vendor is under external administration or in bankruptcy.
海外住户在面临外部管理或破产情况下，房产交易是清算收购的一部分。

4. What happens if the purchaser doesn’t withhold the tax?
4. 买家不缴税会怎样？

If a purchaser fails to withhold the correct amount and pay it to the ATO on completion, then the penalty payable by the purchaser will be equivalent to the amount that it should have withheld had it acted appropriately (eg 10% of the purchase price).
如果买家没有以正确的方式将代缴的增值税转给ATO，那么买家将要受到与应交税额一致的罚款（如购买价的10%）。

5. What does the vendor need to do?
5. 卖家需要做什么？

If the vendor does not agree that a standard withholding amount of 10% is appropriate, it will need to either:

如果卖家不同意10%作为税款，那么就需要：

• obtain a clearance certificate (eg for Australian resident vendors);获得官方声明（比如，卖家是澳大利亚自主居民就不用交税）

• give a declaration to the purchaser in accordance with the statutory requirements. However, vendors should be aware that there are significant penalties for giving false declarations; or给买家法定要求的声明，然而卖家应当注意，错误的声明面临严重的惩罚

• obtain a notice of variation seeking a lesser withholding rate.获得寻求变更税率的通知

6. What kind of processes will be put in place and how long will things take?
6. 有哪些步骤，需要花多长时间？

The online systems are still being finalised, however, the ATO has advised that:

在线系统仍在敲定中，ATO建议：

• certificates and notices will be available via a simple online system, accessible via the ATO website;证明和通知将可以通过登陆ATO官网，通过简单的在线系统申请获得；

• clearance certificates should be available within a matter of days, will be valid for 12 months and can be requested well in advance of a specific transaction; and免税证明应该在一定的时间段内发送，有效期12个月。卖方如果满足免税条件，可以在房产交易前几天向政府提出申请；

• a notice of variation will be a much longer process (eg at least a month).税收变更的过程会更长（如至少需要一个月的时间）。

Some practical examples…
一些实际案例

 

Transaction 交易	Foreign resident action 外国居民做法	Purchaser’s withholding obligation 买家扣缴义务
Sale of real property with market value of AUD 1.1 million 市场价澳币110万的不动产销售	No action required 不需要做任何事	Nil. The market value is less than AUD 2 million, so it is an excluded transaction (see part 4 above) 市场价低于澳币200万的不包含在内
Sale of real property with market value of AUD 2.5 million 市场价澳币250万的不动产销售	No notice of variation or declaration provided to purchaser 不需要给买家更改通知或声明	Purchaser must withhold and remit to ATO full 10% (ie AUD 250,000) 买家必须给ATO提交10%完整税款（如澳币250,000）
	Notice of variation obtained and provided to purchaser prior to completion (eg showing variation from 10% to 6%) 获得变更通知，并在交易完成之前提供给买家（比如从10%变为6%）	Purchaser can rely on the notice of variation and will withhold and remit to the ATO the varied amount (ie AUD 150,000) 买家可以依靠更改通知给ATO提交更改后的税款（如澳币150,000）
	Appropriate vendor declaration provided to the purchaser prior to completion 在完成之前给买家提供恰当的卖家声明	Purchaser can rely on the declaration if it does not believe the declaration to be false. Purchaser can adjust the amount withheld on completion having regard to the declaration 买家可以以声明为准，可以根据声明调整缴税数额

 

For further information please contact Leisha de Aboitiz.

 

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Disclaimer: This article is intended to provide commentary and general information.  It should not be relied upon as legal advice. Formal legal advice should be sought having regard to any particular facts or circumstances.