Rent relief and COVID-19 – the changing landscape in 2021

In July, we wrote about the NSW government’s introduction of new legislation to support retail and commercial tenants affected by the current lockdown. Under the Retail and Other Commercial Leases (COVID-19) Regulation 2021 (the 2021 Regulation), “impacted lessees” are protected from a landlord taking certain actions to enforce the lease.

But what if you are struggling to meet rent demands or otherwise comply with your lease and you are not an impacted lessee under the 2021 Regulation? You may have other rights at law which can be utilised to either negotiate a commercial outcome with your landlord or to otherwise protect your lease interest.

The raft of COVID related rent relief legislation over the past 12 months has led to some confusion among tenants as to when and if they are entitled to rent relief. For many, the only certainty they have found in their commercial leases during COVID has been through negotiation with the landlord.

Noting the above, we recommend that both landlord and tenant alike seek to negotiate a commercial outcome to avoid the uncertainties in the Code and the Regulations.

Summary of Rent Relief Regulations

Below we have set out the various legislation enacted by the NSW Government which provided rent relief provisions for retail and commercial tenants:

Each of the above regulations (collectively, the Regulations) have nuanced differences which can make it difficult for landlords and tenants alike to understand their respective entitlements and obligations under the law. It is not surprising that a number of landlords and tenants have fallen into dispute over differing views as to the application of the Regulations.

In effect, the Regulations provided (and continue to provide) protections for commercial and retail tenants against prescribed actions being taken by the landlord (such as eviction, requirements to trade certain hours and increases in rent) and also required that rent relief be negotiated in accordance with the National Cabinet’s Mandatory Code of Conduct – SME Commercial Leasing Principles During COVID-19 (Code)

One thing that each of the Regulations have in common is that they all reference the application of the Code. Unlike the Regulations (which have a specified end date), the Code applies during the “COVID-19 Pandemic Period” or a “reasonable subsequent recovery period”. The uncertainty around these terms is discussed further below.

However, the Code relies upon the Regulations to give it effect and does not, of itself, provide any legislative basis to claim relief.

The Code

The Supreme Court of New South Wales has determined that pursuant to the 2020 Regulation No 2 and the Code, a tenant is entitled to rent relief not only for the period in which that Regulation applied, but also for a subsequent reasonable recovery period pursuant to the Code. In that case, the subsequent reasonable recovery period was determined to be six months. While this is an indication that the Courts consider the Code as having application through the Regulations, it remains unclear if the Code could also apply during the period earlier this year when no Regulations were in place.

Although the introduction of the 2021 Regulation may alleviate some of the uncertainty around the continued application of the Code, there are undoubtedly a significant number of tenants unsure what, if any, rights they have to claim rent relief under the Code for the period 29 March 2021 to 13 July 2021. For these tenants, the 2021 Regulation may have come too late particularly given a return to regular trade is still some way off. Instead, uncertainty remains as to whether tenants have been entitled to relief under the Code on and from its commencement, as arguably Australia has been in an ongoing Pandemic Period since at least March 2020.

Putting aside any renegotiation between landlord and tenant that may have taken place under the 2020 Regulations, including the application of agreed rent relief during a reasonable recovery period, is a tenant entitled to rent relief for the period prior to 13 July 2021? The answer remains unclear.

Risks for landlords who do not renegotiate for the interim period

The most likely argument a retail tenant could make would be that a refusal to grant rent relief despite their trade remaining significantly reduced was unconscionable within the meaning of section 62B of the Retail Leases Act 1994. The Code was clearly intended to apply during the COVID-19 period and it is clear that we are still within that ‘period’, given the current lockdown. If a tenant’s trade has simply not recovered and, but for the lack of legislation strictly applying the Code during the relevant period, they would otherwise be entitled to rent relief under the provisions of the Code, a tenant may be able to argue that a refusal to grant rent relief is unconscionable. Clearly, the more severely affected the tenant’s business, the more likely they will be to convince a court that refusing rent relief is unconscionable, however at least for now the argument remains untested before the courts.

Negotiate away any uncertainty

The interplay between the Code and the Regulations is anything but straightforward. It is therefore hardly surprising that disputes between landlords and tenants have been frequent since the Regulations first commenced.

For landlords and tenants, the only certainty in their relationship is likely to be through a good faith negotiation to balance the rights and obligations of both parties. This allows landlords to meet any obligations to financiers or otherwise fund required upkeep for the property, while also still receiving a measure of the rent they would ordinarily be entitled to. As for tenants, they can negotiate certainty in their rent payments which can assist in cash flow and business planning activities.

If you would like advice or assistance to negotiate rent relief with your landlord, you can utilise our Rent Negotiation Legal Service or contact our office.

Authors: Adam Cutri, Gavin Stuart & Scott Homan