Massons

South Australia – COVID-19 Update – Commercial Tenancies

Written by Ole Mitrevski on April 21, 2020

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.

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

Australia's commercial property law experts

Enquiries

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