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Code of Conduct for Landlords and Tenants Impacted by COVID-19

On 24 April 2020 the provisions of the National Cabinet Mandatory Code of Conduct and Commercial Leasing Principles During COVID-19 were enacted in New South Wales through:


  1. Retail and Other Commercial Leases (COVID-19) Regulation 2020 [NSW] made under the Retail Leases Act 1994 (NSW) applying to retail leases; and

  2. Schedule 5 Commercial leases – COVID-19 pandemic special provisions of the Conveyancing (General) Regulation 2018 [NSW] made under the Conveyancing Act 1919 (NSW) applying to commercial and industrial leases.


(“The Regulations”)

Both Regulations operate concurrently for a period of six months commencing 24 April 2020


(“Prescribed Period”).

The purpose of The Regulations is to preserve leases and the small businesses that depend on them continuing during the Prescribed Period. Below is a brief overview of The Regulations:


Eligibility

The Regulations apply to tenants who:

  1. Have been adversely impacted by COVID-19;

  2. Are eligible for the Federal Jobkeeper Scheme; and

  3. Had a turnover of less than $50 million during the 2018/2019 financial year.


Outgoings

If a landlord receives a reduction for any outgoing recoverable from the tenant (e.g. land tax or council rates) then that reduction must be passed onto the tenant.


Rent Increase

Rent cannot be increased during the Prescribed Period (this restriction does not apply to turnover rent).


Restrictions on Enforcement Action

Landlords are prohibited from taking enforcement action (e.g. terminating the lease or making a claim on a security bond) against tenants who fail to pay rent and outgoings or fail to be open for business during the hours specified in the lease due to the impacts of COVID-19.

The Regulations do not prohibit a Landlord from taking enforcement action with respect to breaches that have not occurred due to COVID-19.


Negotiate

If a tenant feels that it cannot meet its obligations under a lease, the tenant should approach the Landlord as soon as possible to renegotiate the terms of the Lease, whether it be opening hours or payment of rent.


The Parties must be open and honest with each other, negotiating in good faith.


Mediate

Prior to commencement of any proceedings, the Parties must apply for mediation facilitated by the Office of the NSW Small Business Commissioner. Whilst this requirement was previously applicable to just retail leases, The Regulations have extended it to commercial and industrial leases. Both parties equally bear the cost of the mediation.


Mediation is an informal process where the Parties negotiate their dispute with the assistance of an independent mediator. Mediation is conducted on a without prejudice basis which means that anything said during mediation cannot later be relied upon by the other party in Court, so the parties should feel free to be open and frank with each other during the mediation.


Proceedings

Should a party commence proceedings after a failed mediation, the Court will have regard to the National Code of Conduct when determining a matter. A party should consider the National Code of Conduct prior to commencing of any proceedings because the decision made by the Court could be very different to the decision that would have been expected prior to COVID-19.


Useful Links

Retail and Other Commercial Leases (COVID-19) Regulation 2020 [NSW]:

https://legislation.nsw.gov.au/regulations/2020-175.pdf


Schedule 5 Conveyancing (General) Regulation 2018 [NSW]:

https://www.legislation.nsw.gov.au/#/view/regulation/2018/424/sch5


National Cabinet Mandatory Code of Conduct:

https://www.pm.gov.au/sites/default/files/files/national-cabinet-mandatory-code-ofconduct-sme-commercial-leasing-principles.pdf


Office of the NSW Small Business Commissioner:

https://www.smallbusiness.nsw.gov.au/


Article written by Ruth Tzouras JP | Licensed Conveyancer & Paralegal

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