The Delta variant of Covid-19 is currently wreaking havoc on much of Australia, particularly New South Wales and Victoria. With many retailers and commercial premises closed (or trade significantly restricted due to lockdowns), many businesses and residential tenants are struggling to meet their usual rental commitments. There is also confusion amongst landlords as to what assistance they are obligated to provide by law to distressed tenants.
In this article, we seek to shed light on the legislative framework for commercial, retail and residential landlords and tenants in New South Wales.
WHAT RELIEF IS CURRENTLY AVAILABLE IN NSW FOR COMMERCIAL AND RETAIL TENANTS?
The NSW Government has taken steps to offer support to distressed tenants under commercial and retail leases by:
- Passing the Retail and Other Commercial Leases (COVID-19) Regulation 2021 (under the Retail Leases Act 1994); and
- Amending Schedule 5 to the Conveyancing (General) Regulation 2018.
In a nutshell, these Regulations are designed to protect tenants from being evicted or facing action for “prescribed breaches” of their leases during this time. The Regulations are also designed to provide clarity, and a baseline position for landlords and tenants when negotiating rental relief.
We discuss relief available specifically for residential tenants and landlords at the end of this article.
PRESCRIBED BREACHES – WHAT PROTECTION IS GRANTED TO TENANTS?
‘Prescribed breaches’ under the Regulations are the failure to pay rent or outgoings, or where a business ceases to trade during the hours specified in their lease.
Where one or more of these breaches under a retail or commercial lease occur during the ‘Prescribed Period’ of 13 July 2021 to 13 January 2022, landlords will be prevented from evicting tenants, ending a lease or making a claim (or any other remedies normally available to a landlord) without first attempting mediation. Note that if there is rent unpaid (or other outstanding breaches) that predate 13 July 2021, the landlord may still pursue those rights.
If mediation fails to resolve the dispute, the landlord may then be allowed to take further action. The Small Business Commissioner will be required to certify whether the mediation has occurred, and why it failed to resolve the dispute.
WHAT ABOUT RENT RELIEF?
For qualifying tenants under commercial or retail leases, landlords may not increase rent during the Prescribed Period. In addition, landlords are required to negotiate a rental relief package for distressed commercial and retail tenants in ‘good faith’ having regard to the impact of the COVID-19 pandemic on the tenant and the leasing principles set out in the National Cabinet Mandatory Code of Conduct—SME Commercial Leasing Principles During COVID-19 (National Code).
Under the National Code, landlords should provide impacted tenants with rental relief in the form of rental waivers and rental deferrals equal to the tenant’s turnover decline in the period. Of the relief provided, 50% of the relief should be in the form of a rent waiver and 50% should be in the form of a deferral (e.g. the rent is not waived, but must be repaid over time). For example, if a tenant’s turnover is down 60% in the impacted period, then rent should be relieved by 60% – of which 50% is waived and 50% is deferred.
Where rent is deferred, payment of the deferred rent will occur over the balance of the lease term or a period of no less than 24 months, whichever is greater.
Landlords are also required under the National Code to pass on any reduction in statutory charges such as land tax and council rates, or insurance to lessees in proportion to that reduction. There are some benefits to Landlords who provide relief, in the form of land tax concessions/waivers and access to a NSW Government fidelity fund.
WHICH COMMERCIAL AND RETAIL TENANTS ARE COVERED?
The Regulations will only apply where the tenant under a commercial or retail lease is a small business genuinely affected by the COVID-19 pandemic. To qualify, a business must have annual turnover of less than $50 million, and must be eligible for any of the following grants:
- 2021 COVID-19 Micro-business Grant;
- 2021 COVID-19 Business Grant; and/or
- 2021 JobSaver Payment.
The onus is on the tenant to provide the landlord with evidence that are they eligible for any of these grants.
WHO IS NOT COVERED?
Any tenant with annual turnover of more than $50 million, and who is not eligible for any of the grants listed above.
HOW LONG ARE THE REGULATIONS IN FORCE?
The Regulations will be in effect until 15 January 2022, assuming that the legislation is not extended pending further lockdowns. The NSW Government has shown a willingness to extend the regulations where necessary due to extended lockdowns.
SPECIFIC RELIEF FOR RETAIL AND COMMERCIAL LANDLORDS
Commercial or residential landlords who have reduced their tenants’ rent due to COVID-19 between 1 July 2021 and 31 December 2021 may be eligible for land tax relief. Eligible landlords will be entitled to a reduction in land tax payable, being the lesser of:
- the amount of rent reduction provided to an eligible tenant for any period between 1 July 2021 and 31 December 2021; and
- 100 per cent of the land tax attributable to the parcel of land leased to that tenant.
As an alternative to land tax relief, a new $40 million “Commercial Landlord Hardship Fund” has also been introduced providing grants of up to $3,000 per month per retail or commercial lease to eligible small landlords who experience hardship as a result of providing rental relief. This fund will only be available for landlords who have not separately claimed land tax relief to offset rent reductions offered and will only be available until the $40 million fund has been exhausted.
It will depend on a landlord’s individual circumstances as to whether land tax relief or access to the Hardship Fund is the more financially viable option.
For either land tax relief or access to the Hardship Fund, Landlords must apply through the Service NSW website. The most up-to date information on eligibility can be found here for land tax relief and here for the Hardship Fund.
WHAT ABOUT RESIDENTIAL TENANCIES?
The NSW Government has also introduced support packages for residential landlords and tenants. The residential tenancy support payment is available to eligible landlords who agree to reduce the rent of COVID-19 impacted tenants from 14 July 2021. At the time of this article, Landlords can currently apply for amounts up to $3000. From 24 September 2021, Landlords will be able to apply for amounts between $1,500 and $4,500. For up-to-date information on eligibility and how to apply, Landlords should visit the service NSW website here.
Eligible residential tenants can obtain rent relief under the same residential tenancy support scheme and can benefit from a freeze on evictions for failure to pay rent during the moratorium period starting on 14 July 2021 and ending at the end of 11 November 2021. For up-to-date information on eligibility and how to apply, Tenants should visit the Department of Trading’s website here.
NEXT STEPS ?
Small businesses, residential tenants or landlords who are affected in some way by the new regulations or who need help in negotiating with their landlord or tenant should seek professional advice.
We can assist with all initial enquiries in relation to what assistance maybe available in your particular circumstances and if you need assistance in negotiation and all legal consequences of this legislation we can direct you to our firms solicitors, Hitch Advisory, who are experts in the Regulations and all aspects of retail and commercial leasing – they will be happy to assist.
Please get in touch with your usual Quantiphy contact in the first instance.