As many businesses in NSW are forced to close as a result second lockdown, many businesses have been significantly impacted by loss of income and lack of cashflow to sustain its operations.
Among various support packages, the NSW Government enacted the Retail and Other Commercial Lease (COVID-19) Regulation 2021 ('Regulations').
The Regulation puts in place protections for tenants having difficulties complying with lease obligations. It restricts landlords from taking "prescribed action" in relation to a "prescribed breach" that occurred during the "prescribed period" from 13 July 2021 to 20 August 2021 unless mediation has been attempted and certified by a registrar as unsuccessful.
Tenants protected by the Regulations
The Regulations applies to:
- Retail and commercial leases in effect before 26 June 2021; and
- Any tenant that is an "impacted lessee" being a tenant with a turnover in the 2020–2021 financial year that was less than $50 million and qualifies for one or more of the following NSW government grants:
- Micro-business COVID-19 Support Grant;
- COVID-19 NSW Business Grant; and/or
- Job Saver Grant.
A tenant must provide information to the landlord to show it is an "impacted lessee"
- A statement to the effect that the lessee is an "impacted lessee"; and
- Evidence that the lessee is an "impacted lessee".
A "prescribed breach" for which a landlord cannot take a "prescribed action"
- A failure to pay rent;
- A failure to pay outgoings; or
- The business not being open for business during the hours required under the lease.
The restrictions on landlords under the Regulations
The "prescribed action" that a landlord is prohibited from taking is action under the lease or seeking orders in legal proceedings including
- Interest on unpaid rent;
- Performance by the tenant;
- Other remedy under common law or statute.
Implications and considerations
Whilst the Regulations requires landlord to mediate with tenants, there is no guidance on resolving any "prescribed breach". It appears the NSW Government wants landlords and tenant to cooperate and reach mutual outcomes without mandating concessions by the landlord or granting relief to the tenant.
Unlike the previous COVID-19 regulations in 2020 during Sydney's first lockdown which required the landlord to renegotiate rent with the tenant, the Regulations does not prescribe any rent relief or similar obligation on the landlord. It is a matter for landlords and tenants to decide whether to negotiate rent, if any.
A landlord may take "prescribed action" following unsuccessful mediation. The process of mediation might take months which, if anything, will allow the tenant time to arrange its affairs.
The "prescribed period" expires after 20 August 2021. However, the Regulations remain in operation until January 2022 leaving open the prospect of amendments or further protections for tenants including waiver or deferral of rent.