COVID-19 Changes Affecting Landlords and Tenants: Extended Protections and Limited Rent Reduction

Trade and tourism are slow­ly recov­er­ing after the lock­downs of 2021, but com­mer­cial ten­ants are still feel­ing the impact of COVID-19 due to the recent out­break of the Omi­cron vari­ant.

To assist still-strug­gling busi­ness­es, on 17 Jan­u­ary 2022 the gov­ern­ment extend­ed the pro­tec­tion for com­mer­cial ten­ants until 13 March 2022. This means ten­ants are still enti­tled to rene­go­ti­ate rent and land­lords must con­tin­ue to attempt medi­a­tion before enforc­ing their rights.

If you missed our pre­vi­ous arti­cle out­lin­ing the restric­tions on landlord’s rights, you can read it here.

 

Which tenants are protected under the current Regulations?

There has been a slight change to the ten­ants pro­tect­ed by the Reg­u­la­tions to align with the changed gov­ern­ment grant sit­u­a­tion. The cur­rent reg­u­la­tions are the Retail and Oth­er Com­mer­cial Leas­es (COVID-19) Reg­u­la­tion 2022 and Sched­ule 5 of the Con­veyanc­ing (Gen­er­al) Reg­u­la­tion 2018 (Reg­u­la­tions).

Under the cur­rent Reg­u­la­tions a ten­ant is pro­tect­ed, if at any time between 13 July 2021 and 13 March 2022 (Pre­scribed Peri­od) they either:

1. qual­i­fied for one of the three NSW COVID-19 busi­ness grants; or
2. would have qual­i­fied had they not received a Com­mon­wealth COVID-19 Dis­as­ter Pay­ment.

If a ten­ant falls into this pro­tect­ed cat­e­go­ry, even once dur­ing those eight months, they are enti­tled to request a rene­go­ti­a­tion of rent, and a land­lord can­not enforce pay­ment of out­stand­ing rent with­out first attempt­ing medi­a­tion.

 

How much rent are landlords required to reduce?

While ten­ants may request a rent rene­go­ti­a­tion, they may not be enti­tled to reduced rent for the entire Pre­scribed Peri­od.

Under the Reg­u­la­tions, when a ten­ant no longer qual­i­fies for a COVID-19 grant, they are no longer enti­tled to a rent reduc­tion. The pre­vi­ous­ly avail­able grants, which car­ried with them the right to receive a rent reduc­tion, have now end­ed.

How­ev­er, the amend­ed Reg­u­la­tions extend the right to a rent reduc­tion for some small­er ten­ants, whose turnover is less than $5 mil­lion. Such ten­ants are enti­tled to reduced rent for peri­ods of time when they would have qual­i­fied for the fol­low­ing grants (if they were still avail­able):

1. 2021 COVID-19 Micro-busi­ness Grant; and/or
2. 2021 Job­Saver Pay­ment.

All oth­er ten­ants are only enti­tled to a rent reduc­tion for the peri­od they actu­al­ly received gov­ern­ment grants. After receiv­ing their last grant, they must return to pay­ing full rent, unless oth­er­wise agreed with the land­lord.

If you are a com­mer­cial land­lord or ten­ant who needs to rene­go­ti­ate rent, down­load our guide. Our guide sets out the com­mer­cial leas­ing prin­ci­ples in the Nation­al Cab­i­net Manda­to­ry Code of Con­duct, which should be con­sid­ered in rene­go­ti­a­tions, in addi­tion to the eco­nom­ic impacts of COVID-19. We have expe­ri­ence assist­ing clients with rent rene­go­ti­a­tions and can act on your behalf.

 

Are grants calculated as part of a tenant’s turnover?

Yes, grants are includ­ed in turnover. This is anoth­er change effect­ed by the new Reg­u­la­tion.

When rene­go­ti­at­ing rent with a land­lord, ten­ants must dis­close the grants they received as part of their turnover or trade. This dis­clo­sure assists a land­lord in rene­go­ti­a­tion by pro­vid­ing a com­plete view of the tenant’s finan­cial sit­u­a­tion.

 

If a tenant fails to pay rent, can a landlord enforce its rights?

The answer is still: yes, if the ten­ant is pro­tect­ed by the Reg­u­la­tion and the land­lord has attempt­ed medi­a­tion, a land­lord can enforce its rights.

Please see our pre­vi­ous arti­cle for details on the medi­a­tion process.

Pro­vid­ed that the Pre­scribed Peri­od is not extend­ed again, rent due from 14 March 2022 can be enforced with­out the pre­req­ui­site of medi­a­tion. How­ev­er, the Reg­u­la­tion may still require medi­a­tion before enforc­ing rent due pri­or to 14 March 2022.

 

What if a tenant does not cooperate?

A land­lord need only rene­go­ti­ate rent if a ten­ant coop­er­ates.

This means a ten­ant must request that the land­lord rene­go­ti­ate rent. Such a request must be made dur­ing the Pre­scribed Peri­od. Ten­ants may make a sec­ond request, if rent has already been rene­go­ti­at­ed once, as long as the same rent is not being rene­go­ti­at­ed.

When mak­ing a request, ten­ants must also pro­vide the lessor with a state­ment say­ing they are an impact­ed lessee for the pur­pos­es of the Reg­u­la­tion, sup­port­ed by evi­dence. In oth­er words, they must prove that their finan­cial sit­u­a­tion qual­i­fied or would have qual­i­fied them for one of the pre­vi­ous gov­ern­ment COVID-19 grants.

If the ten­ant does not pro­vide this infor­ma­tion, the land­lord need not rene­go­ti­ate rent.

 

Can a landlord increase rent under the Lease?

No, until 14 March 2022 rent can­not be increased unless the rent is based on turnover.

The Reg­u­la­tions have already been extend­ed a few times, so this date may be pushed out depend­ing on the government’s response to the eco­nom­ic sit­u­a­tion at that time.

 

 

If you require assistance with renegotiating rent or enforcing your rights, please reach out to the property and commercial law team at Donovan Oates Hannaford. 

 

 

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