NSW landlord and tenant regulations passed

The New South Wales government has produced regulations to give effect to the National Cabinet Mandatory Code of Conduct for landlords and tenants.

We have not yet see the Victorian equivalent and it is not clear whether Victoria’s regulations will follow a similar model or take a different approach.  However, it is already apparent that there are some differences between the two states.

A copy of the Retail and Other Commercial Leases (COVID-19) Regulation 2020 (NSW) can be found here: https://www.legislation.nsw.gov.au/#/view/regulation/2020/175/id2

Highlights of the NSW Regulations include:

1. The landlord of a commercial lease to which the NSW Regulations apply is prohibited from taking any action (including terminating the lease, taking possession of premises, claiming interest, claiming a deposit or suing on a guarantee) because the tenant failed to pay rent, pay outgoings or operate its business at the leased premises for six months after the NSW Regulations commence.  (Indemnities are not mentioned.)
2. Rent must not be increased during that six months period.  It is unclear if the rent increase is waived or deferred.
3. Reductions in land tax and other statutory charges (such as council rates) are  passed on to tenants.
4. The NSW Regulations apply on their face only to leases and do not appear to apply to licences.  Unlike the Victorian Act, it is unclear whether a franchisee outlet licence will be protected by the NSW Regulations.
5. It appears that the NSW Regulations are effective from 24 April 2020 (although it is no entirely clear on my reading of the Regulations – on one view they may have taken effect on 25 April 2020, but that is unlikely as it is was both a Saturday and ANZAC Day).
6. The NSW Regulations automatically sunset six months after their commencement, which is stated to be 24 October 2020.
7. An ‘impacted lessee’ is a lessee that: (a) qualifies for JobKeeper (unlike the Victorian Act, there is no requirement to ‘be a participant in’ the JobKeeper scheme);  and (b) has a turnover of under $50M in FY2018-2019 (unlike the Victorian Act, eligibility cannot be based on FY2019-20).
8. If the lessee is a franchisee, turnover is determined by the turnover of the business conducted at the premises or on the land concerned.  If the lessee is a member of a group, it is based on the turnover of the group.  In any other case, it is based on the turnover of the business conducted by the tenant.  (It is unclear how a franchisee that owns various outlets and numerous corporate entities would be treated, but they may well be few in number).
9. Turnover of a business includes internet sales.
10. The definition of a corporate group from the Corporations Act 2001 (Cth) is adopted.  It will be interesting to see whether Victoria adopts a broader approach (as the Victorian Act suggests).
11. The NSW Regulations do not apply to leases entered after the Regulations commenced, except options for an extension or renewal of a pre-existing lease.
12. Any act or omission by a tenant that is required by law in response to the COVID-19 pandemic is taken not to be a breach of the lease or grounds for termination.
13. The parties can contract out of the NSW Regulations.  However, if the tenant agrees to pay rent during the six months of the operation of the NSW Regulations, the landlord must mediate before taking any of the prescribed actions (including terminating the lease, taking possession of premises, claiming interest, claiming a deposit or suing on a guarantee).
14. Either party to an impacted lease covered by the NSW Regulations can request a mediation and the parties are required to attend mediation and renegotiate the rent and other terms of the lease in good faith, ‘having regard to’ the economic impacts of the COVID-19 pandemic and the leasing principles set out in the National Code.  The Regulations make specific reference to leasing principles 3-5, 7-10 and 12 and point out that “leasing principle No. 3 in the National Code of Conduct requires landlords to offer rent reductions, in the form of waivers or deferrals of rent, proportionate to lessees’ reductions in turnover”.  However, it is unclear whether and to what extent the parties are bound by those leasing principles, particularly given: (a) the use of the phrase ‘having regard to’;  and (b) that some of the leasing principles in the National Code are expressed to be discretionary while others are mandatory.
15. The Regulations do not prevent landlords taking action against their tenants on grounds that do not relate to the economic impact of COVID-19.

Also, the NSW Regulations contain this at Reg 9:

The Tribunal and any court, when considering whether to make a decision or order relating to any of the following, is to have regard to the leasing principles set out in the National Code of Conduct—

(a)   the recovery of possession of premises or land from a lessee,
(b)   the termination of a commercial lease by a lessor,
(c)   the exercise or enforcement of another right of a lessor of premises or land.

We will need to see in due course how this regulation is interpreted and applied, and it will, no doubt, be the subject of further debate.  However, on one view at least, it appears require the Courts to consider leasing principles in the National Code when considering an actions against tenants to which the NSW Regulations do not apply, which may include new leases and leases for tenants with a turnover above the $50M threshold.