Commerical leases rental coronavirus

Pandemics are bad for business, and Commercial leases will now have to reflect that for the COVID-19 period

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The COVID-19 pandemic has just slugged the global economy with the most significant downturn since the Great Depression. Still, once the virus is under reasonable control, it will probably be easier to recover economically than in the 1930s. Nevertheless, many businesses could collapse in the short term, which would have become viable again once the ‘invisible enemy’ is beaten back. Many retail and dine-in companies are in that category. Internet retail was already giving ‘bricks and mortar’ retail a run for its money, but now the pandemic has shut it down.

Governments cannot necessarily save every business during an economic downturn, but Australian governments have decided to limit business collapses. They have made arrangements for specific government support of employee wages during this period. They have put regulations in place restricting the rights of commercial landlords to evict tenants for non-payment of rent where they have been struck by the Coronavirus pandemic.

The Commonwealth government has put in place the JobKeeper program where it pays $750 per week to employees who have been stood down because of pandemic restrictions. Furthermore, companies that qualify for JobKeeper and have an annual turnover of less than $50 million are covered by the Australian National Cabinet’s Mandatory Code of Conduct on SME Commercial Leasing Principles During COVID-19. On 24 April 2020, the NSW Government enacted the Mandatory Code of Conduct to apply to premises in New South Wales in the Retail and Other Commercial Leases (COVID-19) Regulation 2020 (NSW), applicable for only the next six months. Still, it may be extended, depending on pandemic and economic outcomes.

The essence of these provisions is that, where a small or medium business has suffered a COVID-19 downturn, it should not be evicted from its premises or sued for rent arrears during the COVID-19 period and ‘a reasonable period of recovery.’ The main idea is that tenants and landlords should negotiate in a fair way a reduction in rent, which is proportionate to the damage to revenue caused by the virus lockdown.

The landlord should waive at least half of that amount and defer the other half to be paid back over two years or the rest of the lease, whichever is sooner. There are also provisions to ensure that any remissions of land tax that the NSW government gives to landlords are passed on to tenants proportionately. Creative solutions are encouraged, whether they be sub-leases, lease assignments, or other arrangements. A landlord cannot take action against the tenant by evicting them, entering and taking control of the premises, seizing goods, or suing them unless they have entered into such an agreement first. Importantly for shopping centre tenants, it also prohibits landlords from penalising them for not being open for business for all the hours which are specified in the lease.

There are many ‘shoulds’ and ‘reasonableness’ involved so that this Regulation may generate as much heat as light. To avoid the risk of ending up in the NSW Civil & Administrative Tribunal in a landlord-tenant dispute, with all the costs and delays that entails, it is worth getting legal advice about your position as either a tenant or landlord under these arrangements, for striking a fair bargain over the rent during the pandemic and only go to the Tribunal if all reasonable negotiations have broken down.

Contact us for an initial free no-obligation discussion of your needs in this area.

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