From now until January 2022, landlords of eligible SME tenants cannot pursue some enforcement action such as eviction and termination unless the parties have negotiated and attempted mediation.
What are recent developments?
In July 2021 as it became apparent Sydney’s second lockdown would not be short-lived, the NSW Government introduced regulations which required retail and commercial landlords to use mediation before taking enforcement action against eligible tenants.
Last month as the lockdown dragged on, these regulations were amended (as set out in the Retail and Other Commercial Leases (COVID-19) Regulation 2021) to expand protections for eligible tenants, extending the prescribed period for the application of the protections from 20 August 2021 to 13 January 2022.
What protections are currently in place for tenants?
Until the end of the prescribed period, retail and commercial landlords are generally unable to terminate or enforce leases where tenants do not pay rent, pay outgoings or trade. The protections are, in summary:
- No Rent Increases – Rent can’t be increased during the prescribed period.
- Obligation To Negotiate – The parties must renegotiate rent, and other lease terms, if requested to do so, within 14 days of the request. Negotiations must be conducted in good faith and have regard to the COVID-19 commercial leasing principles in the National Cabinet Mandatory Code of Conduct.
- Compulsory Mediation – The parties must engage in mediation before landlords can take enforcement action for certain breaches
Under the commercial leasing principles, landlords must reduce rent in direct proportion to tenants’ decline in turnover (e.g. a 40% decline in turnover would equate to a 40% rent reduction). At least half of any rent reduction must be a rent waiver, with the balance being a rent deferral. Any deferred rent must then be repaid over the remainder of the lease or for a period of at least 24 months, whichever is greater.
Who is eligible?
Eligible tenants (‘Impacted tenants’) are those able to receive specified COVID-19 grants (the 2021 COVID-19 Micro-business Grant, the 2021 COVID-19 Business Grant, or the 2021 Job Saver payment), and which have an annual turnover below $50 million in FY 2020–2021.
What’s the position for landlords?
In view of the current regulations, it would be prudent for landlords to avoid issuing formal demands for arrears in rent and rent increase notices, and to promptly respond (within 14 day or as agreed) to requests for rent renegotiation.
However, landlords are still able to take action on grounds that are not related to the economic impacts of COVID-19.
What assistance is available for landlords?
Landlords that provide rent relief are eligible for land tax relief of corresponding value up to 100% of their 2021 land tax liability. Rebates are available for landlords that have already paid land tax and land tax will be waived for those landlords yet to pay.
A further government initiative is the upcoming $40 million Commercial Landlord Hardship Fund. The Fund will provide grants of up to $3,000 per month per eligible property, in proportion to ownership share, for eligible small retail and commercial landlords who suffer hardship as a result of reducing rent for tenants impacted by COVID-19.
Eligibility requirements for grants under the Fund include:
- Reaching agreements with impacted tenants that comply with the Retail and Other Commercial Leases (COVID-19) Regulation 2021
- Obtaining tenants’ approval to disclose agreement terms for the purpose of applying for grants
- Providing evidence the agreed amount has been applied to the month for which the grant is being claimed
The government has indicated that applications for the Fund will open in October 2021.
Residential tenants are reminded that the protections available under the government COVID support package will very soon be phased out.
On 11 September 2021, the 60-day protection against eviction for rental arrears will end. Landlords will then be able to take enforcement action against tenants who are behind on rent, and have not entered an agreement to vary rent.
On 26 September 2021, the various protections put in place during the previous moratorium period (in April-March 2021) will also come to an end.
Practical Takeaways – How SLF Can Help
SLF Lawyers are here to help.
The ways in which we can assist include negotiations over rent relief, attending or advising on mediation, and if you are considering seeking rent relief, we can assist with drafting a rent relief request and proposal tailored to your situation.
Please reach out and let us know if you would like to discuss this update in more detail.
Article written by Kim Nicholson of our Sydney office.