Retail and Commercial tenants in NSW are likely familiar with the operation of the provisions of the National Cabinet Mandatory Code of Conduct - SME Commercial Leasing Principles ('the Code') and the NSW Government's regulations that followed to give effect to the Code in response to COVID-19 pandemic during 2020 and, for some tenants, the first quarter of 2021.

The following is a summary of the Code and the regulations that were made to give legal effect to the Code from April to December 2020 and, to a more limited extent, the first quarter of 2021:

The Code

The Code, which was announced by the Federal Government Cabinet on 4 April 2020, imposed a number of "Leasing Principles" required to be followed by landlords, afforded the following relief and protections to tenants whose businesses had been impacted by COVID-19:
Landlords were:

1. prohibited from terminating leases due to non-payment of rent;
2. required to offer tenants rent concessions in the form of waivers and deferrals of rent proportionate to the reduction in the tenant's trade (up to 100% of the amount payable under the lease).
   Rent waivers and deferrals were required to include at least:
   1. a 50% rent waiver (that is, the rent is never required to be paid); and
   2. a 50% rent deferral (to be repaid over the balance of the lease term, or 24 months, whichever is greater); but
   3. "should" constitute a greater proportion of waiver where failure to do so would compromise the tenant's ability to fulfil its ongoing obligations under the lease;
3. freeze all rent increases (except for retail leases whose rent is based on turnover rent);
4. pass onto tenants any entitlements they receive to a reduction in land tax, council rates and other statutory charges; and
5. not impose fees, interest or other charges.

To avail themselves of the relief afforded by the Code, tenants had to demonstrate the extent of any reduction in turnover, and were also required to remain committed to complying with all other terms of their lease.

Although the Code was expressed to be mandatory, it initially had no legislative force.

The First Regulations

On 24 April 2020, to give legislative force to the Code, the NSW government introduced the Retail and Other Commercial Leases (COVID-19) Regulation 2020 ('First Regulations'), which applied from 24 April 2020 - 24 October 2020 ('Prescribed Period') to both retail and commercial tenants: 

1. who qualified for JobKeeper under sections 7 and 8 of the Coronavirus Economic Response Package (Payments and Benefits Rules 2020 (Cth), which in turn required that it:
   1. carried on business in Australia or were non-profit bodies operating principally in Australia on 1 March 2020; and
   2. satisfied the "decline in turnover" test, being a decline in turnover of more than 15% for an ACNC-registered entity (with some exceptions), or 30% for most other tenants, in comparable periods in 2019; and 
2. whose turnover in the 2018/19 financial year was less than $50 million (including internet sales), noting that:
   1. in the case of franchisee tenants, the turnover is of the business conducted at the particular premises concerned;
      1. in the case of a corporate tenant which was a member of a group (as defined in the Corporations Act 2001 (Cth) ('Corporations Act')), the turnover of the group; and 
      2. in the case of any other tenant, the turnover is of the business conducted by the lessee (this would include the total of a tenant's turnover across multiple locations).
   2. whose leases commenced before 24 April 2020 or were entered into after 24 April 2020 pursuant to an option under a lease entered into before 24 April 2020;

To qualify for relief, tenants had to make a request under the Code and First Regulations during the Prescribed Period (i.e. relief could not be requested retrospectively).  The best to way demonstrate the decline in turnover was for a tenant to provide its Business Activity Statements for a period in 2019, and compare it to its turnover for the same period in 2020 so as to express the decline as a percentage.  

The percentage is then applied to the rent payable under the lease for that period, and the landlord would then grant a waiver of at least 50% of the result, with the balance deferred over at least 24 months (even if the lease expired during that period).

If a lease met the above criteria, the First Regulations prohibited a landlord from taking any of the following actions against the lessee for a failure to pay rent or outgoings, or for not keeping the premises open during the business hours required by the lease (if any):

1. evicting a tenant;
2. exercising a right of re-entry;
3. recovering possession of the premises;
4. seizing a tenant's goods to recover money owed;
5. forfeiting (terminating) the lease;
6. seeking damages from the tenant;
7. requiring a payment of interest on, or a fee or charge for, unpaid rent;
8. recovering the whole or part of a security bond (including calling upon a bank guarantee);
9. pursuing the tenant or any other person who has given a personal guarantee under a lease;
10. seeking to enforce any further or other remedy that might otherwise have been available to the landlord under the lease;
11. increasing the rent, or pursing the tenant for a failure to pay such increased rent even after the Prescribed Period ends; and
12. where a fixed amount of Land Tax, Council Rates or contributions to a landlord's insurances is payable under a lease, and the landlord has obtained a concession on any of those items, the landlord cannot require a tenant to pay the full fixed sum under the lease - it must be reduced to the extent of the concession.

The Second Regulations

On 23 October 2020, the NSW Government introduced the Retail and Other Commercial Leases (COVID-19) Regulation (No 2) 2020 ('Second Regulations') which extended the "Prescribed Period" of the First Regulations from 25 October 2020 to 31 December 2020 for both commercial lease and retail lease tenants.

The Third Regulations

On 18 December 2020, the NSW Government introduced the Retail and Other Commercial Leases (COVID-19) Regulation (No 3) 2020 ('Third Regulation's) which extended the operation of the Second Regulations from 1 January 2021 to 28 March 2021, but only for retail lease tenants with an annual turnover of less than $5 million - that is, the turnover threshold was substantially reduced, and the "Prescribed Period" was not extended for commercial lease tenants. 

The 2021 Regulations

On 14 July 2021, following the re-emergence of the COVID-19 pandemic, the NSW government introduced the Retail and Other Commercial Leases (COVID-19) Regulation 2021 ('2021 Regulations'), which this time applied from 13 July 2021 to 20 August 2021 ('New Prescribed Period') and again to both retail and commercial lease tenants: 

1. who qualify for 1 or more of:
   1. the Micro-business COVID-19 Support Grant, which requires a tenant to:
      1. have a turnover of between $30,000 and $75,000;
      2. have suffered a decline in revenue of 30% or more; and
      3. operate a business that provides the primary income for a person associated with its business; or
   2. the COVID-19 NSW Business Grant, which requires a tenant to:
      1. have an active Australian Business Number; 
      2. demonstrate its business was operating in NSW as at 1 June 2021;
      3. have had total annual Australian wages of $10 million or less as at 1 June 2021;
      4. have an aggregated annual turnover of between $75,000 and $50 million for the year ended 30 June 2020;
      5. have business costs for which there is no other government support available; and
      6. maintain their employee head count as at 13 July 2021; or
   3. the Job Saver Grant, which requires the tenant to:
      1. have a turnover of between $75,000 and $50 million; and
      2. have suffered a decline in revenue of 30% or more; and
   4. whose leases commenced before 26 June 2021, or were entered into on or after 26 June 2021 pursuant to an option under a lease entered into before 26 June 2021.

Importantly, the 2021 Regulations do not provide for rent relief (waiver or deferrals) - they only prohibit landlords from taking the following "Prescribed Action" against a tenant between 13 July 2021 and 20 August 2021 for a failure to pay rent or outgoings, or for not keeping the premises open during the business hours required by the lease (if any):

1. evicting a tenant;
2. exercising a right of re-entry;
3. recovering possession of the premises;
4. seizing a tenant's goods to recover money owed;
5. forfeiting (terminating) the lease;
6. seeking damages from the tenant;
7. requiring a payment of interest on, or a fee or charge for, unpaid rent;
8. recovering the whole or part of a security bond (including calling upon a bank guarantee);
9. pursuing the tenant or any other person who has given a personal guarantee under a lease;
10. terminating the lease; or
11. any further or other remedy that might otherwise have been available to the landlord at common law or under another law of NSW.

It is also worth noting that the 2021 Regulations do not prohibit the increasing of rent under a lease during the New Prescribed Period (as the First, Second and Third Regulations did).

However, as was the case for the First, Second and Third Regulations:

1. nothing in the 2021 Regulations prohibits landlords from taking a "prescribed action" on grounds not related to the economic impacts of COVID-19; and
2. a landlord under a retail or commercial lease can take a "Prescribed Action" if the matter has been referred for mediation under Part 8, Division 2 of the Retail Leases Act 1994 (NSW) and the Registrar of Retail Tenancy Disputes has certified in writing that the mediation has failed to resolve the dispute.  

The Registrar of Retail Tenancy Disputes is part of the Office of the NSW Small Business Commissioner, though mediations concerning coronavirus relief legislation are usually referred to mediators from the NSW Civil and Administrative Tribunal ('NCAT').

Land Tax Relief

Although the 2021 Regulations do not mandate rent abatements and deferrals as the First, Second and Third Regulations did, on 14 July 2021, in order to encourage landlords to offer rent relief anyway, Revenue NSW announced its 2021 Land Tax COVID-19 relief package, which entitles a landlord to a reduction in the land tax it would otherwise have been required to pay up to an amount equivalent to any rent reduction it gives to a qualifying tenant (up to 100% of the land tax payable) between 1 July 2021 and 31 December 2021.

The eligibility criteria is that:

1. the landlord is leasing a parcel of land to:
   1. a commercial tenant who has an annual turnover of up to $50 million and is eligible to be approved for the Micro-business COVID-19 Support Grant, the 2021 COVID-19 NSW Business Grant and/or the JobSaver scheme; or
   2. a residential tenant who has had a reduction in household income of 25% (or more) as a result of COVID-19 and in respect of which you the landlord is not claiming an entitlement under the Residential Tenancy Support Package;
2. that the landlord reduce the rent of the affected tenant for any period between 1 July 2021 and 31 December 2021; and
3. for 2021, the landlord has land tax attributable to the parcel of land leased to that tenant.

A tenant cannot force a landlord to avail itself of the above land tax reduction, but tenants should be aware of the package - as they may be able to procure rent relief from a landlord up to the amount of that landlord's land tax obligations, even though the 2021 Regulations to not expressly mandate rent concessions this time (although this may change in the coming months depending on how long current lockdown measures and restrictions continue).

If you have a query relating to any of the information in this piece, or you would like to speak with someone in Holman Webb's Business, Corporate and Commercial or Property Groups with respect to an issue of your own - please don't hesitate to get in touch today.