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Tenants & Commercial Leases During COVID19 Restrictions

As we are all aware, on 22 March 2020, the Prime Minister, state and territory Premiers and Chief Ministers agreed to implement new restrictions beginning midday 23 March 2020.

Accordingly, pursuant to Public Health (COVID-19 Places of Social Gathering) Order 2020 made on 23 March 2020 by the NSW Minister for Health, certain places of social gatherings are restricted from opening, including:

  • pubs, registered and licenced clubs (excluding bottle shops attached to these venues) and hotels (excluding accommodation);

  • gym/indoor sporting venues;

  • cinemas, entertainment venues, casinos and night clubs;

  • restaurants and cafes (restricted to take away or home delivery); and

  • places of worship or funerals (where they take place in enclosed spaces and other than in small groups where the 1 person per 4 square metre rule applies).

(Please note that by the time you read this there may be further restrictions, or the restrictions may have changed, because of the rapidly evolving nature of this matter. Please check the Australian Government website for details.)

A contravention of this Order will constitute an offence which can be met with a significant fine and a term of imprisonment. Moreover, the COVID-19 Legislation Amendment (Emergency Measures) Bill 2020 (NSW), passed by the NSW Legislative Assembly and currently awaiting assent, authorises a police officer to arrest anyone suspected of contravening a public health order relating to the COVID-19 pandemic.

For many of our clients who lease commercial premises for the purpose of operating a business and who are now forced to close their doors to the public, these new restrictions will have a significant impact on their ability to continue paying rent.

So what options are available for business owners and operators who are precluded from trading, yet their commercial lease remains on foot and rent becomes due and payable?

First step: Communicate with your landlord

While we should be taking all necessary preventative steps to slow the spread of COVID-19 as directed by our government and health advisors, the situation will (hopefully) eventually ease and businesses will once again be permitted to open their doors to the public.

For many business owners, it will be preferable to continue operating their business from the same premises, as it may already be tailored to suit their specific needs and their location may be well-established within the local community.

For many landlords, given the state of the commercial property market at present, it may be difficult find a new lessee who is capable of paying rent at the same rate, especially where the premises is designed to accommodate a particular type of business which is currently restricted from operating.

It may therefore be in the interests of both the lessee and the landlord to maintain their relationship as best they can so that, when the restrictions do finally ease, we can all go back to “business as usual”.

We therefore recommend that a lessee’s first step is to contact their landlord (or, if necessary, the agent or property manager) and enquire as to whether they will consider reducing the rent, or even postpone or waive the payment of rent, for the period during which the restrictions remain in place.

If your landlord is willing to accommodate you, you may wish to put any agreement you reach in writing so that the rights and responsibilities of both parties are outlined as clearly as possible. The agreement should be flexible because the restrictions may change as time passes.

We are happy to assist you in your negotiations and to draft a written agreement where necessary. Please contact us if you would like more information about this process.

Second step: Mediation

If negotiations with your landlord do not go according to plan, your next option may be to engage in formal mediation with your landlord or some other form of alternative dispute resolution.

This may be especially prudent for lessees who would otherwise incur significant costs associated with exiting the premises and setting up their business elsewhere.

Mediation allows parties to remain in control of any agreement that is reached. While a mediator facilitates the meeting by providing both parties with an equal opportunity to make their position clear and to explore possible options available to them, the lessee and lessor will come to their own resolution. As above, it is prudent to put any agreement reached during mediation in writing.

For small business owners in NSW, the NSW Small Business Commissioner offers independent and cost-effective mediation services in relation to commercial lease disputes. Alternatively, we can assist you in engaging private mediation services to attempt to reach an agreement that is suitable for both parties.

If mediation is unsuccessful, the matter may progress to the New South Wales Civil and Administrative Tribunal (NCAT).

If you would like further information regarding NCAT or the mediation process itself, please contact us.

Unenforceable Leases

In some cases, depending on the terms of the lease, your landlord may even be precluded from enforcing the lease and, most importantly, from demanding the payment of rent.

In particular, where the purpose of the lease is to use the premises for the operation of a business that is now restricted from opening, the lease may be unenforceable to the extent that it would require you to act in contravention of the restrictions currently in place.

The landlord may be, precluded from suing you for rent that would otherwise become due and payable during the restriction period because it would require you to engage in an illegal act. Whether this applies to you depends on the circumstances of your business, the nature of the premises, and the terms of your lease.

If you think this might apply to you or you would like further information or advice, please contact us - (02) 6772 4899 or via email to: (Chloe) or (Cameron)

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