Massons

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

Written by Jodie Masson on April 27, 2020

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.

Insights

"Excellence Awardee" - Boutique Firm of the Year - 2022 Australasian Law Awards

We are delighted that Massons has been selected as an “Excellence Awardee” in the category of “Boutique Firm of the Year” at the 2022 Australasian Law Awards.

Thank you to all of our wonderful clients who have supported our nomination in this category, and to our amazing lawyers and support staff for making this possible!

Wishing all the other Awardees the best of luck and looking forward to the Gala Dinner.  A night out with our team is always cause for celebration – win, lose or draw!!

March 23, 2022

Doyle's Guide 2022

We are excited about our inclusion in Doyle’s Guide for 2022 for NSW in the following categories:

Massons – Leading Property & Real Estate Law Firms
Jodie Masson – Leading Property & Real Estate Lawyers and Leading Leasing Lawyers
Leisha de Aboitiz – Leading Property & Real Estate Lawyers and Leading Leasing Lawyers
Ben Malone – Property & Real Estate Law Rising Stars

Thank you to all of our peers and wonderful clients who have helped to achieve this recognition.

March 14, 2022

"Rising Stars" Australasian Lawyer 2022

February 28, 2022

Appointment as Senior Associate

We are excited to announce the appointment of Alex Ho as a Senior Associate at Massons.  Alex started with us as a paralegal and has achieved this milestone in record time due to his hard work, his ability to develop and sustain fantastic relationships with clients, his engagement in constantly seeking to improve himself and others in equal measure, and his absolutely infectious enthusiasm.  We couldn’t be prouder!  Congratulations Alex!

January 5, 2022

Australian Lawyer's Elite Women List 2021

December 8, 2021

We are excited to have been named as finalists in several categories in the Lawyers Weekly “Women in Law Awards 2021”:

– Massons – “Boutique Diversity Law Firm of the Year”
– Ole Mitrevski – “Senior Associate of the Year – SME Law”
– Michelle Mon – “Rising Star of the Year – SME Law”
– Nicole Caryofyllis – “Legal Support Professional of the Year”

We are proud to be recognised as a Firm which supports diversity in the workplace and are humbled to be included in the list of finalists in these categories. Win or lose, we are looking forward to celebrating the Awards night and would love to thank our peers and clients who have helped us achieve this recognition.

October 12, 2021

Australia's commercial property law experts

Enquiries

Phone: +61 2 8923 0900
Email: property@massons.com