With the light now visible at the end of covid rental relief tunnel, impacted tenants and their landlords have little over two months to finalise leasing issues.
The Retail and Other Commercial Leases (COVID-19) Regulation 2021 was redrawn in August to firm the guidelines around rental relief provisions and extend the expiration date precisely four months to January 13 2022.
The aim of the code has been for NSW landlords and tenants to renegotiate lease terms in good faith and attempt to mediate in favour of taking court proceedings – effectively sharing financial risk and any cashflow challenges brought about by covid.
Previously landlords were required to attempt mediation before locking out or evicting tenants. The revised code goes further by mandating the minimum relief that landlords need to provide impacted tenants: landlords must offer tenants with an annual turnover of up to $50 million and who qualify as ‘impacted lessees’ a proportionate reduction in rent based on their decline in turnover. The reduction is to be a combination of:
- Rental waiver with at least 50% of the total reduction between July 13 and January 13 AND
- deferral of rent, which must be repaid over the balance of the lease term or at least 24 months - whichever is greater unless otherwise agreed.
Rental waivers and deferrals need be up to 100% of the amount ordinarily payable by the tenant.
To qualify as an ‘impacted lessee’ a tenant must demonstrate a decline in business turnover of 30% or more and provide evidence of this to the landlord. This decline is required to have been suffered for a minimum of two weeks during the period after June 24 this year. A tenant needs to have qualified for one or more of the government grants (which required a minimum 30% decline in turnover).
Should a tenant qualify, a landlord is prevented from taking ‘prescribed actions’ against the tenant which includes such moves as eviction, seizure of goods, and lease termination.
Senior lawyer Geeti Chawla at Sydney’s Ivy Law Group said while there is still confusion around the code among commercial agents, landlords and tenants, the revised legislation has been working well for the majority in her experience.
“From what I’m seeing in the market and the matters that are coming in the impacts of covid haven’t quite left us yet,” Ms Chawla said. “It is still phasing out.
“The second wave of covid was far greater than the first – and as these are unprecedented times we’re still getting used to handling a pandemic.
“This means it will take some time before people get back on their feet and get back to business as usual so I think the extension is valid and for the moment it is working. The only criticism I would make is that because there were so many changes it became a little confusing.”
While the revision was very much in favour of the tenant it “certainly has benefits for landlords” Ms Chawla said, not least of which are more clearly defined parameters. Eligible commercial landowners can also apply for up to 100% compensation for 2021 land tax. Eligibility hinges on an owner having reduced the rent for an affected tenant by at least the amount being claimed for any period between July 1 and December 31 this year.
Devil in the detail
Agents who have contacted Ms Chawla have been largely inquiring about the finer details and nuances contained within the revised code, she said. Landlords have also been concerned about generosity of the rental reductions, with The Property Council of Australia particularly vocal in its opposition to government intervention in commercial leases and the negotiation process.
“It’s substantial for all,” Ms Chawla said. “It’s a huge dip – and I’ve had landlords among our clients who have been very concerned as a 50% or 100 % reduction is a substantial drop - and the only relief is it’s ending on January 13.
“I can’t imagine the government will extend the code beyond January 13. We’ve come to a time when we need to learn to live with covid. We have to manage what repercussions it will have. The introduction of these legislative codes has been like triage in that the government has had to respond quickly.”