The Retail and Other Commercial Leases (Covid-19) Regulation 2021 (NSW) (“the Regulation)” commenced on 14 July 2021 and ends on 13 January 2022 (6 month period) (“Prescribed Period”).

This regulation does not apply to new leases entered into after 26 June 2021; however it does cover lease extensions.

It has been enacted for businesses struggling financially as a result of the continuation of the COVID-19 outbreak in New South Wales.

Does this new Regulation apply to you?

Any tenant wishing to obtain the protection of the Regulation has to satisfy the following:

1. Qualify for at least one or more of the Micro-Business SOVID-19 Grant, Job Saver grant or the COVID-19 Business Grant; and

2. Has a turnover in the 2020/2021 financial year of less than $50 million (if the tenant is a corporation, it will include the tenant’s group of companies),

which is defined in the Regulation as an Impacted Lessee.

Evidence of the above is to be shown to the landlord in a timely manner in order to obtain such protection together with a statement supplied to the landlord that they are an Impacted Lessee.

What protections are you entitled to?

As an Impacted Lessee, the following protections will be obtained:

(a)    to prohibit a lessor increasing rent during the prescribed period if the lessee is an impacted lessee;

(b)    to require lessors and impacted lessees to renegotiate rent and other terms of the lease if one party requests the renegotiation;

(c)     to require a renegotiation to be conducted in good faith with consideration being given to the leasing principles set out in the National Cabinet Mandatory Code of Conduct—SME Commercial Leasing Principles During COVID-19 (the National Principles);

(d)    to require a lessor to do the following before taking action in relation to certain breaches of the lease occurring during the prescribed period—

 i. to attempt to mediate the dispute with the impacted lessee, and

ii. to engage in a renegotiation if required,

(e)     to provide that actions an impacted lessee takes to comply with a law are not breaches of a commercial lease; and

(f)      to require a court or tribunal to consider the National Principles when considering whether to make certain orders or decisions relating to commercial leases.

Thus, if a party to an impacted lease receives a request to amend the lease then the other party 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 by the parties.

These protections are only in relation to prescribed breaches relating to a failure to pay rent, outgoings or a failure to open the tenant’s business during the hours required under the lease.

Please note that these protections only apply during the Prescribed Period.

What rent relief are tenant’s entitled to?

The Regulations will require landlords to renegotiate rent having regard to the National Cabinet’s Code of Conduct. The Code of Conduct requires landlords to provide rent relief in proportion with their tenant’s decline in turnover. Of the rent relief provided, at least 50 per cent must be in the form of a waiver and the balance as a deferral.

The Office of State Revenue states that a landowner providing a reduction in rent to a tenant between 1 July 2021 and 31 December 2021 can receive a reduction in land tax payable for the relevant parcel of land. The land tax reduction will be the lesser of:

i. the amount of rent reduction provided to an eligible tenant for any period between 1 July 2021 and 31 December  2021, or

ii. 100 per cent of the land tax attributable to the parcel of land leased to that tenant.

This land tax reduction is only available where the landlord does not require repayment of rent at a later date.

Conclusion

Impacted lessees cannot have their leases terminated or security called until mediation has first been exhausted. Currently, the Small Business Commissioner has a large backlog and obtaining a mediation date could take a while, thus it is in both parties' interests to try and resolve the matter amongst themselves.

Once a resolution is achieved, it is best to have this documented and executed by both parties to avoid any issues in the future.

It is possible many landlords will elect to first apply for land tax relief and then pass on any rental relief received onto their tenants.

If you do not resolve your dispute with the landlord, then speak to a lawyer specialising in commercial leases to assist you.