How does Covid 19 affect Commercial or Retail Leases?
Non-payment of rent would ordinarily amount to a breach of the Lease by a tenant (“Lessee”) and allow a landlord (“Lessor”) to take certain actions against the tenant, such as to terminate the lease and recover funds owing. However, the COVID-19 pandemic has seen changes to our laws in this area.
The key legal instruments that impact on retail and commercial leases are the Retail and Other Commercial Leases (COVID-19) Regulation 2020 (the “Regulation”) (https://legislation.nsw.gov.au/view/html/inforce/current/sl-2020-0175) and the National Cabinet Mandatory Code of Conduct (the “Code”) (https://www.pm.gov.au/sites/default/files/files/national-cabinet-mandatory-code-ofconduct-sme-commercial-leasing-principles.pdf). These instruments seek to relieve pressure on tenants and have, in turn, restricted the rights of landlords, including where a tenant fails to pay rent.
One of the main requirements of the Regulation is that parties to a Lease renegotiate the rent in good faith, having regard to the Code, before any legal enforcement action can be commenced. Section 6(1)(a) of the Regulation also states that:
If a lessee is an impacted lessee, a lessor must not take any prescribed action against the lessee on the grounds of a breach of the commercial lease during the prescribed period consisting of a failure to pay rent.
Whether a tenant is an “impacted lessee” depends on the turnover of the tenant or whether it qualifies for Jobkeeper (see section 4). Effectively, a landlord cannot take the actions it would ordinarily take against a tenant for non-payment of rent if COVID-19 has impacted the tenant’s business so much so that it qualifies as an “impacted tenant”.
The Code also sets out several leasing principles, such as number 11 which states Landlords must not draw on a tenant’s security for the non-payment of rent… during the period of the COVID-19 pandemic and/or a reasonable subsequent recovery period.
A recent NSW Supreme Court decision has provided further clarity on the Regulation and Code (see Sneakerboy Retail Pty Ltd trading as Sneakerboy v Georges Properties Pty Ltd  NSWSC 996). The Court accepted that “a subsequent reasonable recovery period” should be no less than 6 months after the pandemic, although it may be longer than this and will depend on the circumstances of each case.
Landlords should be careful before taking any actions against a tenant for non-payment of rent and should consult a Solicitor about their rights and responsibilities. If you would like advice about this, please do not hesitate to contact our Commercial & Leasing Solicitors at Brazel Moore Lawyers on (02) 4324 7699.
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