Commercial and Retail Leases – a Post Pandemic Refresher
This article was written by Greg McAllister.
As part of a raft of emergency measures introduced by the NSW State Government in response to the Covid-19 pandemic, the Retail and Other Commercial Leases (COVID-19) Regulation 2021 (the Regulation) was enacted to provide some economic protections to retail tenants impacted by “lockdowns” and other health measures forming the response. With the State Government now having moved from pandemic management to “living with Covid”, one might be mistaken for thinking that the Regulations, having lapsed on 30 June 2022, would no longer be applicable and that there would be a return to business as usual for lessors and tenants of retail leases.
Continuing Protections – Amendments to the Retail Leases Act
Amendments have been introduced at Part 11 of the Retail Leases Act 1994 (NSW) (the Amendments) which preserve some rights / protections afforded to tenants during the pandemic. Importantly, lessors must continue to abide by the Regulations should they wish to take ‘prescribed actions’ against a tenant if the action is taken because of a breach occurring during the period 13 July 2021 to 30 June 2022, and the lease was otherwise an ‘impacted lease’.
Accordingly, to understand the Amendments and how they might apply to a recovery action contemplated by a lessor now, it is necessary to consider the meaning of a number of key definitions in the Regulations:
A lessee is an impacted lessee if—
(a) the lessee qualifies for 1 or more of the following, or would qualify but for a COVID-19 Disaster Payment made to the lessee by the Commonwealth—
(i) 2021 COVID-19 Micro-business Grant,
(ii) 2021 COVID-19 Business Grant,
(iii) 2021 JobSaver Payment,
(iv) 2022 Small Business Support Program, and
(b) the following turnover in the 2020–2021 financial year was less than $5 million—
(i) if the lessee is a franchisee—the turnover of the business conducted at the premises or land concerned,
(ii) if the lessee is a corporation that is a member of a group—the turnover of the group,
(iii) in any other case—the turnover of the business conducted by the lessee.
A prescribed action is defined as taking action under the provisions of a commercial lease or seeking orders or issuing proceedings in a court or tribunal for any of the following—
(a) eviction of the lessee from premises or land the subject of the commercial lease,
(b) exercising a right of re-entry to premises or land the subject of the commercial lease,
(c) recovery of the premises or land,
(d) distraint of goods,
(g) requiring a payment of interest on, or a fee or charge related to, unpaid rent otherwise payable by a lessee,
(h) recovery of the whole or part of a security bond under the commercial lease,
(i) performance of obligations by the lessee or any other person pursuant to a guarantee under the commercial lease,
(k) termination of the commercial lease,
(l) any other remedy otherwise available to a lessor against a lessee at common law or under the law of this State.
A prescribed breach of an impacted lease means—
(a) a failure to pay rent, or
(b) a failure to pay outgoings, or
(c) the business operating under the lease not being open for business during the hours specified in the lease.
Means the period commencing at the beginning of 13 July 2021 and ending at the end of 30 June 2022.
The effect of the Amendments is that despite the Regulations coming to an end, a lessor may not take action against a tenant on the grounds of a prescribed breach of an impacted lease occurring during the prescribed period, before first:
– attempting to renegotiate the rent payable (and other relevant terms of an impacted lease) for the period(s) covered by the Regulations (if they have not already attempted to negotiate with the tenant), and if that fails,
– until such time as the issues have been referred to mediation under the Retail Leases Act 1994 (NSW)and the Registrar has certified in writing that the mediation has failed to resolve the dispute.
The Retail Leases Act has for some time required lessors and tenants to attempt mediation of a ‘retail tenancy dispute’ prior to commencing proceedings against the other in a court or tribunal. The inclusion of the Amendments does not materially change the way lessors and tenants deal with disputes arising during the prescribed period as compared to those arising after the period, but it does preserve the requirement that the lessor and tenant must first attempt to renegotiate the issues per the Regulations.
Lessors must continue to remain alert as to whether the action they are contemplating is based on a prescribed breach of the lease. Importantly, the Amendments do not impact a lessor’s rights in relation to breaches of the lease which occurred outside the prescribed period.
Please contact Greg McAllister, Senior Associate on 02 9291 7147 or Adrian O’Dea, Partner on 02 8226 7307 who can assist with your enquiries.