NSW Commercial Lease Regulation COVID-19 Amendments

*This data is correct as of 5.00pm on Friday 10 July and is topic to vary as this example evolves.

In a earlier alert (click on right here), we addressed the Nationwide Code of Conduct. On 24 April 2020, the Retail and Different Industrial Leases (COVID-19) Regulation 2020 (NSW) (Regulation) commenced, giving impact to the Code in New South Wales. You can even learn extra concerning the Regulation in our earlier alert which will be discovered right here.

Because of uncertainties with respect to the appliance of the Regulation, the New South Wales Authorities has now launched the Retail and Different Industrial Leases (COVID-19) Modification Regulation 2020 (Modification Regulation) which amends and clarifies sure clauses of the Regulation. The Modification Regulation commenced on three July 2020.

On this article, we’ll focus on the important thing adjustments made by the Modification Regulation.

Proof required from impacted lessees

Nearly all of the clauses within the Regulation apply to industrial leases the place the tenant is an “impacted lessee”. An impacted lessee is a tenant who:

The Regulation, in its unique type, didn’t impose any requirement for the tenant to supply proof to exhibit that it meets the above standards and is an impacted lessee. This has resulted in landlords adopting various approaches, and pressure rising between landlords and tenants relating to what proof the tenant wants to supply.

The Modification Regulation inserts a brand new clause into the Regulation that requires impacted lessees to provide the owner the next in respect of the impacted lease:

If the tenant fails to supply the above data, the owner is taken to have complied with the duty to renegotiate hire and different phrases of the industrial lease and is permitted to take prescribed motion towards the tenant. This modification extends to renegotiations which have commenced however aren’t full earlier than three July 2020.

Whereas this clarifies that tenants should present proof, it doesn’t present any steering relating to the extent of proof that’s required to exhibit {that a} tenant is an impacted lessee. Typically talking, the stress rising between landlords and tenants doesn’t relate as to if the tenant is required to supply proof, however slightly pertains to what stage of proof the tenant is required to supply. The Modification Regulation does little to help in resolving pressure of this type.

Obligation to renegotiate hire and different phrases

The Regulation, in its unique type, contained a clause that imposed an obligation on all events to a industrial lease (if requested by the opposite) to renegotiate the hire payable below, and different phrases of, the industrial lease. The events have been required to renegotiate having regard to the Code, which supplies that its ideas ought to apply in spirit to all leasing preparations for affected companies having truthful regard to their measurement and monetary construction.

Because the related clause of the Regulation was not restricted to impacted lessees and required reference to the Code, it was understood that every one landlords below industrial leases have been required to renegotiate in good religion no matter whether or not the tenant was an impacted lessee.

The Modification Regulation has launched the idea of an “impacted lease” to ensure that this provision to use. An impacted lease is a industrial lease to which an impacted lessee is a celebration. This modification extends to renegotiations which have commenced however aren’t full earlier than three July 2020, which means that landlords who’re presently negotiating with tenants who haven’t established that they’re an impacted lessee aren’t required to proceed with such negotiations. Nor are landlords required to enter into new negotiations with tenants who aren’t impacted lessees.

Agreements between the events

The Regulation, in its unique type, contained a clause that offered {that a} lessor and “lessee” aren’t prevented from agreeing to take any motion in relation to a industrial lease (together with the lessor taking any prescribed motion or the events agreeing to terminate the industrial lease).

As this clause was not restricted to impacted lessees, it was understood that it utilized to all agreements below industrial leases no matter whether or not the tenant was an impacted lessee. The Modification Regulation has made adjustments that restrict the appliance of this clause to leases the place the tenant is an impacted lessee.

This variation doesn’t have any materials impact as tenants who aren’t impacted lessees stay free to conform to take any motion in relation to their industrial lease. As an alternative, this alteration creates some consistency and clarifies that regardless of the beforehand inconsistent references to “lessee” and “impacted lessee” the Regulation is meant solely to manipulate agreements below industrial leases the place the tenant is an impacted lessee.

Future legislation protections

The Regulation in its unique type contained a clause which offered that, the place a “lessee” is required to do or omit to do one thing pursuant to a legislation of the Commonwealth or the State that’s introduced into existence in response to COVID-19, such act or omission:

won’t be a breach of a industrial lease

doesn’t represent grounds for termination or the taking of any prescribed motion by the lessor towards the “lessee”.

As this clause was not restricted to impacted lessees, it was understood that the longer term legislation protections utilized to all tenants no matter whether or not they have been impacted lessees. The Modification Regulation has made adjustments that restrict the appliance of the longer term legislation protections to leases the place the tenant is an impacted lessee.

Whereas the implications of this clause are unclear till such future legal guidelines are carried out, virtually talking we anticipate that this could almost definitely apply in circumstances the place premises are ordered to shut and, consequently, tenants can’t commerce or meet different obligations below their industrial leases the place bodily entry to premises is required.

Because of the Modification Regulation, if a tenant who just isn’t an impacted lessee does or omits to do one thing pursuant to a legislation of the Commonwealth or the State that’s introduced into existence in response to COVID-19, that tenant just isn’t afforded any safety and the act or omission might quantity to a breach of the industrial lease.