Mediation is a must - New NSW COVID-19 leasing measures

  • COVID-19
  • Published 02.08.2021

Key Takeaways

In light of the ongoing impacts of COVID-19 and lockdowns, the NSW Government has introduced new measures to support tenants of retail and commercial leases.

The measures introduced create a hurdle for landlords to take actions for some breaches until 20 August 2021. Given the lockdown extensions, the measures may well be extended.

New Regulations

Commencing 14 July 2021, the Retail and Other Commercial Leases (COVID‑19) Regulation 2021 (‘Regulations’) introduced new measures for landlords and tenants of commercial and retail leases which will be in force for a six month period. 

Unlike the former 2020 regulations enacted by the NSW Government which specified the requirement rental waivers and deferrals, these new developments only prohibit landlords from temporarily taking certain actions.

Who is eligible?

The measures only apply to retail and commercial leases entered into prior to 26 June 2021.

The Regulations apply to ‘impacted lessees’ which are tenants:

  1. with a turnover of  less than $50 million (including group turnover and internet sales) for the 2020-2021 financial year; and
  2. who qualify for any of the new government protection grants (i.e. the Micro-business COVID-19 Support Grant, COVID-19 NSW Business Grant, or Job Saver Grant).

Under the Regulations, a tenant is obliged to provide a landlord with a statement that they are an impacted tenant with evidence to that effect before they may rely on the relief provided under the Regulations.  

The statement may be given as soon as practicable after a ‘prescribed breach’ defined as:

  1. the failure to pay rent;
  2. the failure to pay outgoings; or
  3. the business operating under the lease not being open for business during the hours specified in the lease.

What are the new measures?

Upon receiving evidence from a tenant that they are an impacted lessee, landlords are prohibited from taking a prescribed action against a tenant on the grounds of a prescribed breach during the period of 13 July 2021 to 20 August 2021 without first referring the matter for mediation. 

The prescribed actions that cannot be undertaken include:

  1. eviction of a tenant; 
  2. exercising a right of re entry; 
  3. recovery of the premises or land; 
  4. distraint of goods; 
  5. forfeiture; 
  6. damages;
  7. requiring payment of interest on unpaid rent;
  8. calling on security or a guarantee under the lease;
  9. possession; 
  10. termination of the lease; or 
  11. any other remedy available to a landlord against a lessee at common law. 

Before taking any prescribed action, the landlord must refer the matter to the Small Business Commissioner for mediation. These prescribed actions may not be undertaken until the Registrar of Retail Tenancy Disputes has certificated that the mediation has failed to resolve the dispute or unless the parties have agreed otherwise between them. 

Landlords may however continue to take actions in respect of any other breaches of a lease which are not considered a ‘prescribed breach’ under the Regulations.

Implications for tenants and landlords

The new measures promote negotiation between landlords and tenants to try and reach agreement on how their tenancies will operate until 20 August 2021, both within and outside of the mediation process.

Reaching commercial agreements can be beneficial for parties, with the avoidance of excessive time, costs and improving goodwill between the parties. However, the lack of direction provided for in the Regulations as to how the parties are to negotiate may cause some difficulty in obtaining temporary solutions.

Learnings form the 2020 restrictions suggest that the best way forward is open and transparent communication between the parties. We would recommend taking a pragmatic approach. The success of the tenant is usually the best outcome for the landlord in the long run, particularly as vacancies may be hard to fill. 

That being said, the measures also do not prohibit actions being taken entirely, but rather delay such actions by requiring landlords meet the obstacle of mediation first. 

In any event, landlords should be wary of taking any enforcement actions until 20 August 2021. 

Ratnadeep Hor

Partner

P: 02 8257 5710

Email Ratnadeep