COVID-19 Update | On 24 April 2020 the NSW Government gazetted a Regulation to implement the National Code of Conduct | Insights

Key Highlights

•   NSW Government has gazetted a Regulation to implement the National Code of Conduct for Commercial Leases.
•   Regulation commences 24 April 2020 and lasts for six months until 24 October 2020.
•   Regulation is based on the Mandatory Code of Conduct announced by the Prime Minister on 7 April 2020.

Brief Overview

NSW is the first State or Territory to make legislation giving effect to the Mandatory Code of Conduct, with the Retail and Other Commercial Leases (COVID-19) Regulation 2020 taking effect on Friday 24 April 2020, and applying for six months until 24 October 2020.

The Regulation:

•   Prohibits and regulates the exercise of certain rights of landlords relating to the enforcement of certain commercial leases during the COVID-19 pandemic period, and
•   Requires, in response to the COVID-19 pandemic, that landlords and tenants re-negotiate the rent and other terms of those commercial leases in good faith having regard to the leasing principles set out in the Mandatory Code of Conduct before any legal enforcement action can be commenced.
•   Commences 24 April 2020 and does not purport to be retrospective in application.
•   Does not cover leases entered into after 24 April 2020.
•   Lasts for six months until 24 October 2020.
•   Only applies to tenants (an "impacted lessee") who qualify for the JobKeeper program.
•   An "impacted lessee" must have a turnover of less than $50M in the 2018/19 financial year.
•   An "impacted lessee" applies for franchisee tenants, the turnover test at the individual premises level but for tenants that are companies within a group, the turnover test applies at the group level. Includes internet sales within the definition of turnover.
•   Sets out the action a landlord cannot take for certain breaches of commercial leases during the six month period, including for failure to pay rent or outgoings, or not being open for the required hours and limits rent increases.
•   Preserves the right of landlords and tenants to agree to take the actions which would otherwise be prescribed, including terminating the lease.
•   Does not include a right for a tenant to unilaterally terminate a lease. In the case of commercial leases, a landlord must not take action to recover possession, terminate the lease or exercise any other rights under the lease, unless and until the Small Business Commissioner has certified in writing that mediation offered to be conducted has failed to resolve the dispute and given reasons for the failure. In other words, the parties must seek to mediate before the landlord can take action.
•   Provides for the proportionality principle created by the Mandatory Code, specifically, by requiring landlords to offer rent reductions, in the form of waivers or deferrals of rent, proportionate to the reduction in turnover.
•   If a landlord is entitled to a reduction in land tax or other statutory charges (such as council rates) or insurance, the tenant is entitled to pay reduced amounts under its lease in the same proportion as the landlord's reduction.
•   Preserves the right of either party to have the matter reviewed by a NSW Court.
•   Provides that landlords can exercise its rights under the lease for grounds not relating to the economic impacts of the COVID-19 pandemic.

Download the NSW Retail and Other Commercial Leases (COVID-19) Regulation 2020 here.

This article has been prepared with the kind assistance of the Property Council of Australia and Clayton Utz and was arranged by Geoffrey Learmonth, Founder and a Director of LPC.