03/09/2021

The following timeline outlines recent retail and commercial leasing support measures in response to the ongoing COVID-19 crisis and the effect of associated lockdowns. 

  • By - Chris Tohme

    COVID-19 retail and commercial leasing – a further update for New South Wales and Victoria

    In response to the prolonged lockdown for COVID‑19 across New South Wales, the State Government has introduced amended support measures for impacted lessees of retail and commercial leases under the Retail and Other Commercial Leases (COVID-19) Amendment Regulation 2021 (NSW) (Amended Regulation). 

    The Victorian State Government has introduced similar measures to address the evolving COVID‑19 crisis in Victoria.

    Key takeaways:

    1. New South Wales Amended Regulation: The Amended Regulation requires a rent relief negotiation to occur between the lessor and an impacted lessee.
    2. Victorian Regulations:  A lessee who requests rent relief and provides all required evidence on or by 30 September 2021 is entitled to rent relief for the whole of the protection period.  However, a lessee who requests rent relief after 30 September 2021 is only entitled to rent relief starting from the date of its application until 15 January 2022.

    We summarise below:

    1. the updates to the original support measures provided by the New South Wales State Government under the Retail and Other Commercial Leases (COVID-19) Regulation 2021 (NSW) (Original Regulation), as set out in our recent article: COVID-19 retail and commercial leasing update: 12 August 2021; and
    2. the assistance available to impacted lessees of retail and commercial leases in Victoria.

     

    The Amended Regulation in New South Wales

    Extension of prescribed period

    The Amended Regulation extends the expiry of the prescribed period from 20 August 2021 to 13 January 2022. The Prescribed Period is now from 13 July 2021 to 13 January 2022 and is the period during which impacted lessees can seek to rely on the Amended Regulation.

    Definition of impacted lessee

    An impacted lessee is a lessee:

    1. who qualifies for 1 or more of the New South Wales Government’s 2021 COVID-19 Grants (including the 2021 COVID-19 Micro-business Grant, the 2021 COVID-19 Business Grant and the 2021 JobSaver Payment); and
    2. whose turnover in the 2020-21 financial year was less than $50 million.

     

    Leases to which the Amended Regulation applies:

    The Amended Regulation continues to apply to impacted leases (being leases to which an impacted lessee is a party), and still does not apply to a new commercial lease entered into on or after 26 June 2021 (but not if that lease was entered into by means of an option to extend or renew).

    In order to seek to rely on the Amended Regulation, an impacted lessee must give the lessor a statement to the effect that the lessee is an impacted lessee, and evidence that the lessee is an impacted lessee.  The information may be given before, or as soon as practicable after, a prescribed breach occurs (including a failure to pay rent, outgoings or the business not being open during the hours specified in the lease), and must be given within a reasonable time after it is requested by the lessor.

    No increase in rent during prescribed period

    The Amended Regulation states the rent payable under the impacted lease must not be increased during the prescribed period, other than rent or a component of rent determined by reference to turnover. 

    Also, consistent with the Original Regulation, a lessor must not take any prescribed action (which includes, but is not limited to, eviction of the lessee, recovering the whole or part of a security deposit or terminating the lease) unless the matter has been referred for mediation under the Retail Leases Act 1994 (NSW), Part 8, Division 2, and the Registrar prescribed under that Act has certified in writing that the mediation has failed to resolve the dispute.

    The key difference - rent relief negotiation

    As noted above, the Amended Regulation requires a rent relief negotiation to occur between the lessor and an impacted lessee.  

    A party to the impacted lease may request that the other parties renegotiate the rent payable under, and other terms of, the impacted lease.  A party may make a second or subsequent request, but, unless the parties otherwise agree, an impacted lessee may make a second or subsequent request only if the request:

    1. is made during the prescribed period; and
    2. does not relate to rent or outgoings for a period for which the rent or outgoings have already been reduced, waived or deferred following a renegotiation.

    A party to the impacted lease must renegotiate in good faith the rent payable under, and other terms of, the impacted lease, and commence renegotiations within 14 days of receiving the request, or another period agreed to by the parties.  The parties must renegotiate the rent payable under, and other terms of, the impacted lease taking into consideration: the economic impacts of the COVID-19 pandemic, and the leasing principles set out in the National Code of Conduct, which includes the following relevant principles:

    1. lessees should continue to pay rent to lessors where possible, and where there is financial distress of lessees as a result of COVID-19, lessees and lessors should negotiate on a mutually agreed outcome;
    2. rent reductions must be proportional, based on the decline in turnover, to ensure that any burden is shared between the parties; and
    3. at least 50% of the rent reduction must be a waiver (unless the lessee agrees otherwise), with the balance to be deferred.

    Also, a lessor must not take any prescribed action against an impacted lessee on the grounds of a prescribed breach of the impacted lease that has occurred during the prescribed period unless the lessor has complied with the impacted lessee’s renegotiation request.

    Assistance for lessees in Victoria

    The State Government of Victoria has introduced similar measures to those in New South Wales.

    The relevant Victorian legislation is the Commercial Tenancy Relief Scheme Regulations 2021 (Vic) (Vic Regulations).  The Vic Regulations are in effect during the ‘protection period’ of 28 July 2021 to 15 January 2022.

    The Vic Regulations:

    1. similarly impose an obligation on the lessor and lessee to co‑operate, act reasonably and in good faith when negotiating rent relief pursuant to the Vic Regulations. 
    2. apply to leases which are in effect on 28 July 2021 and where the lessee is an ‘eligible lessee’, being an SME entity (with less than $50 million annual turnover) which, on 28 July 2021:
      1. carried on a business in Australia (including not-for-profit); and
      2. satisfies the decline in turnover test, meaning a lessee which has incurred a reduction in turnover of at least 30% or more during the relevant turnover test period (turnover now includes any State Government (but not Commonwealth) COVID grants and any turnover from online sales or other premises).

    A lessee who requests rent relief and provides all required evidence on or by 30 September 2021 is entitled to rent relief for the whole of the protection period.  However, a lessee who requests rent relief after 30 September 2021 is only entitled to rent relief starting from the date of its application until 15 January 2022.

    A lessor must respond to its lessee’s rent relief request within 14 days of the date that the lessee’s application, which must:

    1. relate to up to 100% of the rent payable during the rent relief period;
    2. be at a minimum proportional to the decline in lessee’s turnover associated with the premises;
    3. provide that at least 50% of the rent relief is in the form of rent waiver (unless agreed otherwise); and
    4. take into account any part-payment of rent and any other circumstance that the lessee would like the lessor to consider as per its application.

    Similar to NSW, any rent increase during the protection period is voided and can never be claimed by the lessor (unless otherwise agreed by the parties).

     

  • By - Chris Tohme

    COVID-19 retail and commercial leasing update: 12 August 2021

    The New South Wales and Commonwealth Governments have announced a host of economic and financial support measures for both businesses and households in response to the extended lockdown restrictions in Greater Sydney and other parts of NSW.

    The ‘Combined Support Package’, implemented on 14 July 2021, includes protections for both tenants and landlords in commercial, retail, and residential tenancies and totals over $5.1 billion, with the costs being shared by both the New South Wales and Commonwealth governments.

    Retail and Other Commercial Leases (COVID-19) Regulation 2021 (NSW)

    Like the Regulations of 2020, the Retail and Other Commercial Leases (COVID-19) Regulation 2021 (NSW) (the 2021 Regulation) applies to the exercise or enforcement of rights under an impacted lease, being a commercial lease to which an impacted lessee is a party. 

    An impacted lessee includes a lessee:

    1. who qualifies for 1 or more of the New South Wales Government’s COVID-19 Grants (including the Micro-business COVID-19 Support Grant, COVID-19 NSW Business Grant or Job Saver Grant); and
    2. whose turnover in the 2020-21 financial year was less than $50 million.

    The 2021 Regulation does not apply to a new commercial lease entered into on or after 26 June 2021 (but not if that lease was entered into by means of an option to extend or renew), presumably on the basis that the terms of a lease entered into after that date could be negotiated more favourably in a lessee’s favour.

    The 2021 Regulation states that, if there is a prescribed breach (ie a failure to pay rent, outgoings or the business not being open during the hours specified in the lease) during the prescribed period of 13 July 2021 to 20 August 2021, a lessor must not take any prescribed action (which includes, but is not limited to, eviction of the lessee, recovering the whole or part of a security deposit or terminating the lease) unless the matter has been referred for mediation under the Retail Leases Act, Part 8, Division 2, and the Registrar under that Act has certified in writing that the mediation has failed to resolve the dispute.

    An impacted lessee must also give the lessor a statement to the effect that the lessee is an impacted lessee and evidence that the lessee is an impacted lessee within a reasonable time after it is requested by the lessor or as soon as practicable after the prescribed breach occurs.

    Importantly, and markedly different from the previous Regulation, the 2021 Regulation does not provide for rent relief.  The 2021 Regulation merely prevents a prescribed action from immediately being taken by a lessor. This does not mean a lessor is prevented from ever taking action, as the 2021 Regulation simply requires the parties to first undertake mediation.  However, practically, this means any recourse for the lessor is likely months away. 

    Also, the 2021 Regulation does not prevent a lessor and impacted lessee agreeing to take action in relation to the lease, including the lessor taking prescribed action or the parties agreeing to terminate the lease.  In other words, the 2021 Regulation seemingly will not override provisions in a lease if the lessor and impacted lessee agree to something which is contrary to the 2021 Regulation.

    As noted above, the 2021 Regulation is due to expire on 20 August 2021 and will be automatically repealed 6 months after commencement, ie 14 January 2022.  This allows for the possibility of an extension to the prescribed period beyond 20 August 2021 (which, to date, has not been confirmed).

    Land tax relief

    Land tax relief will be available for certain lessors who reduce the rent for eligible commercial lessees experiencing financial distress due to COVID-19.

    This land tax concession is available for lessors who:

    1. lease to a commercial lessee who has an annual turnover of up to $50 million and is eligible for 1 or more of the New South Wales Government’s COVID-19 Grants (including the Micro-business COVID-19 Support Grant, COVID-19 NSW Business Grant or Job Saver Grant); and
    2. reduce the rent of the affected lessee for any period between 1 July 2021 and 31 December 2021; and
    3. for 2021, have land tax attributable to the parcel of land leased to that lessee.

    The land tax reduction is the lesser of the amount of rent reduction provided to an eligible lessee for any period between 1 July 2021 and 31 December 2021, or 100% of the 2021 land tax attributable to the parcel of land leased to that lessee.

    To be eligible, the rent reduction must not be required to be paid back at a later date. If a reduction in rent is provided but is required to be paid back at a later date, this is considered to be a deferral of rent and will not be considered as a reduction of rent.

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