Among the business relief packages introduced since Sydney’s current lockdown began is The Retail and Other Commercial Leases (COVID-19) Regulation 2021. Unlike last year’s revised regulation, they do not call for lease negotiation or rental waivers. Instead, they prevent a landlord taking action against tenants who are in breach of their lease if they qualify for having suffered financial loss from recent events. But lawyers say the new measures, while helpful, leave much unclear - the bottom line being the sooner individual landlords and tenants nut out workable solutions during this uncertain period, the better.
Regulations announced on July 14 involve limiting a landlord’s ability to take prescribed action against an impacted tenant if they breach a lease (by, for instance, not paying rent) during the period from July 13 to August 20 without first going to mediation.
So, what constitutes an impacted tenant? An impacted lessee is one who qualified for one or more of the following grants.
- Micro-business covid-19 support grant
- Covid-19 NSW Business Grant
- Job Saver Grant
To qualify for these grants, a tenant needs to show a revenue reduction of over 30 per cent plus have recorded an annual turnover of less than $50 million during the 20/21 financial year.
Door wide open
The new regulation does not state exactly what evidence a tenant needs to give their landlord to prove they are impacted. While left up to interpretation, this would most likely be financial statements and evidence of the government grants received. These are to be provided ‘as soon as possible’ after a breach and ‘within a reasonable time’ when requested by your landlord.
And therein lies the problem, says Andrew Grima, principal partner with Coleman Greig and head of the legal firm’s property team. “When legislation starts using the words ‘reasonable time’ and ‘as soon as possible’ the door is left wide open for interpretation and debate,” he says.
What’s more, even though 2020’s lease regulations provided far more guidance than the most recent version, Mr Grima points out he has still spent the past 18 months embroiled in COVID-19-related leasing disputes, working through mediations, negotiations and sadly, some terminations.
“The 2020 version of COVID-19 related regulation at least had a consistent standard of qualification (JobKeeper) and gave some guidance on rental relief - albeit leaving lots of room for negotiation,” he says. “Notwithstanding this, many disputes were drawn out and faced stalemate as parties tried to work out and work around the regulations or waited in line for a mediation.
“However, this time around the 2021 Regulation is more vague. It will lead to further stalemate and provides no guidance on how to tackle rent relief - which in the end is what a tenant is seeking. All the 2021 Regulation does is put off the inevitable!”
The fact that tenants now have the obligation to provide evidence to show they qualify as impacted could help this time around according to Bede Haines, dispute resolution and litigation specialist and partner with Holding Redlich.
“The 2020 laws made this difficult to extract and in our experience there remain some residual tenancy disputes over whether tenants qualified under the 2020 laws,” Mr Haines says. “Hopefully, the duty being placed on tenants (in the 2021 regulation) can avoid this problem. Disputes over a tenant's status ultimately assist neither the landlord nor the tenant.”
As far as prescribed action by a landlord is concerned, this covers taking actions such as moving to evict, recovery of premises, seeking damages, interest, terminating a lease and the like.
Mr Haines is not alone in considering how the Regulation will operate in reality.
“The purpose of the laws is not wholly clear.
“Landlords cannot terminate for arrears, or tenants not trading, between 13 July 2021 and 20 August 2021. But tenants are not absolved of having to pay rent either. Instead, before taking action, mediation is required. What then can mediation achieve?”
Mr Haines says it seems the government wants tenants to access the government's relief package, while not forcing landlords to waive rent. “Instead, landlords must jump a hurdle – mediation,” Mr Haines says. “It's almost like the government hopes parties will agree on something, without being told what - a nudge.”
Bartier Perry partner David Creais further comments that as the 2021 Regulation requires parties to attend mediation before a landlord can take prescribed action, it is unlikely this mediation will be possible to arrange with the Small Business Commissioner before the prescribed period ends.
So, what to do? Move now. Lawyers advise parties to a lease to engage in commercial discussions, gather necessary documentation and nut out agreements. As Mr Haines says, reaching agreements may offer commercial benefit.
“If landlords forego, or defer payment of, some rent in return for a deal on what the tenant will pay until 20 August 2021, goodwill may build, with parties understanding how the lease will operate during the prescribed period,” Mr Haines says.
“Certainty has value, avoiding time and costs with mediation.”