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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

Changes to the Corporations Act 2001 (Cth) in response to COVID-19: section 127 execution

The Federal Government has introduced welcome changes to the Corporations Act 2001 (Cth) by way of the Corporations (Coronavirus Economic Response) Determination (No. 1) 2020 to amongst other things permit companies to execute documents pursuant to section 127 electronically (for example, by Docusign).

At this stage, the changes apply from 6 May 2020 and will be in force for 6 months.

Companies will still need to ensure the electronic execution method complies with the Determination and the relevant electronic transaction legislation in each State (for example, using an appropriate electronic execution method and obtaining consent from parties to the transaction).  We suggest it may be appropriate to include additional drafting in contracts to ensure the electronic execution arrangements are compliant.

May 6, 2020

ACCC Interim authorisation for collective negotiations by retail tenants

On 22 April 2020, the ACCC granted interim authorisation for tenants who are members of the Australian Retailers Association to collectively negotiate with landlords regarding the support to be provided to retail tenants who are adversely impacted by COVID-19 – including information sharing for the purposes of those negotiations.

This interim authorisation protects retail tenants from legal action for certain conduct which might otherwise breach the Competition and Consumer Act 2010 (Cth) and remains in place until it is revoked or the date that the ACCC has made its final determination.  The public consultation process is currently open and the final determination is anticipated in September 2020.

This interim authorisation will be especially helpful for tenants in retail shopping centres and will impact how retail landlords approach rent relief negotiations with their tenants.

April 24, 2020

New South Wales - COVID-19 New regulation - Witnessing documents via audio visual link

New regulation introduced in NSW (applicable to documents governed by state laws) allows for documents to be witnessed by audio visual link for an anticipated period of 6 months commencing from 22 April 2020. Find full copy of regulation here:

Electronic Transactions Amendment (COVID-19 Witnessing of Documents) Regulation 2020

April 24, 2020

Victoria - COVID-19 Omnibus legislation - What it means for commercial/retail tenancies now

The COVID-19 Omnibus (Emergency Measures) Bill 2020 was passed by the Victorian Government yesterday and came into effect today. The Act gives the Governor powers to enact Regulations to prohibit termination rights and limit/modify rights under an ‘eligible lease’.

What we do know now

  • The Regulations (which we have not yet seen) may be retrospective, but they wont apply before 29 March 2020 (so consider whether any April arrangement should remain subject to future rights that you may have under the regulations).
  • For now, the Regulations will only have effect for a maximum 6 months (ie. until 24 October 2020).
  • The Victorian Small Business Commission can make recommendations on the Regulations (so keep an eye out on the VSBC website).
  • The criteria for the Regulations to apply to your lease (ie to be an ‘eligible lease’) includes:
    • the tenant must have less than $50 million annual turnover (current or previous year)
    • the tenant must qualify for and participate in the JobKeeper scheme (eg. at least 30% fall in turnover)
    • the lease must be in effect on the date the first regulation operates (ie. a future date – so consider the impact on leases being/about to be entered into now)

What we don’t know yet

  • We still have to wait for Regulations from the Governor to know the details on how this may impact your rights under a lease.
  • No update on Victoria’s version of the commercial/retail tenancy rent relief framework (the Commonwealth’s Mandatory Code of Conduct is still not law yet in Victoria…).
  • The Regulations may apply to other occupancy arrangements like licences, but we won’t know exactly what that will mean in practice until we see the Regulations.

April 24, 2020

Western Australia - COVID-19 Legislation - Commercial tenancies

Covid-19 legislation for commercial tenancies appears one step closer in WA, with proposed legislation successfully passing both houses of Parliament this week.  Enactment of legislation should be imminent. Interesting to see that WA has also taken the further step of introducing proposed additional legislation (which hasn’t passed Parliament yet) giving certain tenants in ‘severe financial distress’ a regime for early termination of their lease.  This is in contrast to some other States’ views against providing tenants with early termination measures.  Stay tuned for further updates.

Eviction moratorium and code of conduct to protect WA businesses

April 23, 2020

NSW - Strata management during COVID-19 crisis

Many strata schemes in NSW are presently stuck between a rock (face to face meeting obligations) and a hard place (Covid-19 meeting restrictions). NSW Fair Trading acknowledges that whilst meetings for smaller schemes may be able to comply with social distancing orders, meeting requirements are likely to be problematic for larger schemes and so it is “reviewing the situation”. There has been some talk of relying on the “no quorum” default provisions in the legislation to push through approval for alternative/electronic meeting arrangements at a 2-person meeting. Whilst this might seem a little cheeky, query whether this might just meet the dual objectives of staying safe whilst complying with face to face meeting requirements. Guidance notes from NSW Fair Trading Trading can be found here:

Fair Trading – Guidance notes

April 17, 2020

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