Australia: COVID-19 - NSW amends commercial leasing code regulations

In brief

In our previous alert we discussed the Retail and Other Commercial Leases (COVID-19) Regulation 2020 (NSW Code Regulations) which was passed by the NSW Parliament on 24 April 2020 with the object of giving effect to the National Cabinet Mandatory Code of Conduct - SME Commercial Leasing Principles (National Code).

The NSW Parliament has now passed the Retail and Other Commercial Leases (COVID-19) Amendment Regulation 2020 (Amendment) effective as of 3 July 2020.  The Amendment clarifies some of the uncertainties in the NSW Code Regulations, particularly whether certain clauses are limited in application to "impacted lessees" or apply to commercial and retail leases in general.

Who is an "impacted lessee"?

Under the NSW Code Regulations, to meet the criteria of an "impacted lessee" a lessee must:

  • qualify for the National JobKeeper scheme1; and
  • demonstrate a turnover2 in the 2018-2019 financial year of less than $50 million.

Key changes made by the Amendment

The Amendment introduces changes to the NSW Code Regulations which:

  1. clarify that the obligation to renegotiate rent and other lease terms in good faith before taking "prescribed action" applies to impacted lessees only;
  2. require a lessee to establish that they are an impacted lessee by giving the lessor:
    1. a statement to the effect that the lessee is an impacted lessee; and
    2. evidence that the lessee is an impacted lessee;
  1. clarify that the regulation which deems there to be no breach of a lease due to an act or omission of a lessee required by law in response to the COVID-19 pandemic applies to impacted lessees only.

The changes mentioned in (a) and (b) above apply to renegotiations that have commenced but not been completed prior to commencement of the Amendment but do not extend to a matter for which proceedings have been commenced. 

Other observations

The regulation that restricts a lessor of a commercial (non-retail) lease from recovering possession of premises, terminating a lease or exercising its rights under a lease unless a mediation by the Small Business Commissioner has failed to resolve the relevant dispute has not been amended to apply only to leases to impacted lessees, though this regulation continues to presuppose the existence of a 'dispute' and referral to mediation.

The Amendment has also not addressed the regulations which require a Court or Tribunal to have regard to the leasing principles set out in the National Code when considering whether to make a decision or order regarding the termination of a lease or the exercise or enforcement of any other right of a lessor.  Accordingly, there still remains a level of uncertainty as to how a Court or Tribunal will take the principles of the National Code into account in enforcement proceedings concerning non-impacted lessees.

Comparison of the adoption of the National Code between states

We have also updated our summary table circulated in our previous alert which shows a "side by side" comparison of the NSW, VIC and QLD legislation giving effect to the National Code in those states, so you can clearly see the material differences. To view the comparative summary table click here.

Additional Details

To view the Amendment or the NSW Code Regulations on the NSW Government website, click here or here. To view the National Code click here.

1 A lessee is eligible for the JobKeeper scheme if: (a) on 1 March 2020, the lessee carried on a business in Australia or was a non-profit body that pursued its objectives principally in Australia; and (b) the lessee satisfies the "decline in turnover" test - i.e. the lessee's GST turnover has fallen by the relevant amount during its relevant comparison period. There are specific turnover decline test thresholds that apply to tenants of varying turnover sizes and the period in which the test can be applied. The decline test thresholds are as follows:

• 30% fall in turnover for a business with an aggregated turnover of $1 billion or less;

• 50% fall in turnover for a business with an aggregated turnover of more than $1 billion; or

• 15% fall in turnover for ACNC-registered charities (other than universities and schools).

2 Turnover is:

• calculated based on the business conducted at the premises concerned if the lessee is a franchisee;

• assessed at group level for related bodies corporate as defined under the Corporations Act 2001 (Cth).

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