Commercial and Retail Leasing Principles during Covid-19

Commercial and Retail Leasing Principles during Covid-19

In early April 2020 the National Cabinet introduced a Mandatory Code of Conduct (the Code) dealing with SME Commercial Leasing Principles during Covid-19. The New South Wales Government implemented the Code and have introduced temporary measures to provide urgent relief for retail and commercial tenants under the Retail and Other Commercial Leases (COVID-19) Regulation 2020 (the Regulation) for a prescribed period of 6 months, being 24 April 2020 to 24 October 2020.

The Code prescribes a list of 11 overarching principles and 14 leasing principles which aim to guide landlords and tenants with negotiating and implementing the Code in good faith. This article does not discuss each and every overarching principle in detail as generally, the parties need to act in good faith, for example, to act reasonably and fairly having regard to the interests of all parties and/or to act honestly and with fidelity to the bargain.

Some of the key leasing principles, which should be applied and on a case-by-case basis during Covid-19 are:-

• Landlords must not terminate leases due to non-payment of rent;
• Any reduction in statutory charges or insurance will be passed onto the tenant proportionately;
• No fees, interest or other charges should be applied with respect to rent waiver or deferrals;
• Landlords must not draw on a tenant’s security for the non-payment of rent.

The abovementioned leasing principles are only a brief mention of the 14 leasing principles. A full detailed list of the overarching and leasing principles can be found in the Code.

What types of leases are affected by the Regulation?

The Regulation applies to most ‘retail shop leases’ that fall under the Retail Leases Act. It also applies to commercial leases (or leases of land for commercial purposes) defined under the Amendment of Conveyancing (General) Regulation 2018.

What tenants are affected by the Regulation?

The Regulation does not necessarily apply to all tenants (whether commercial or retail).

The provisions of the Regulation only apply to those tenants who are described as “Impacted Lessee”. In the circumstances, a tenant may fall into the “Impacted Lessee” definition if:

• the tenant qualifies for the Jobkeeper scheme; and
• the tenant’s turnover in the 2018-2019 financial year was less than $50 million.

Can a Landlord take action against a Tenant for a breach of the lease?

The short answer is, if the action relates to the Covid-19 pandemic, the Landlord cannot take action against the Tenant, but rather the Landlord and Tenant would need to attend a Mediation, heard by the Small Business Commissioner, to resolve the dispute.

If the dispute was unable to be resolved the Small Business Commissioner would be required to certify in writing that the dispute was unresolved. Court proceedings could then be commenced, however, the Courts are required under the Regulation to consider the leasing principles set out in the Code when making a decision or order.

If an action is for a non-Covid-19 pandemic related reason, then a Landlord is not prohibited from taking action against a tenant for a non-Covid-19 breach. For example, a Landlord may terminate a lease if the Tenant has breached the lease by damaging the premises or if the tenant fails to vacate the premises following the expiry of a fixed term lease.

How can we assist you?

We can assist you with the following:-

• advise you on your rights and obligations as a Landlord and/or Tenant;
• negotiate payment, rent reductions, deferrals, waivers etc;
• preparation of terms and conditions to amend your lease;
• act and appear on your behalf at a Mediation.

Please don’t hesitate to contact our Property team at David Landa Stewart on 9212 1099 if you require assistance navigating the unprecedented changes of the COVID-19 pandemic in relation to any landlord or tenancy related issues.