Negotiating a commercial lease during COVID-19

For many business owners, the COVID-19 pandemic has significantly impacted their ability to meet their obligations under a commercial lease. This has a flow-on effect to landlords who may also be struggling financially during this period, creating tension and leading to rental disputes.

This brief discusses current legislative responses to the impact of COVID-19 and what it means for small to medium sized enterprises (SMEs) and their landlords.

Retail and Other Commercial Leases (COVID-19) Regulation 2020

In response to the pandemic, the NSW Government enacted the Retail and Other Commercial Leases (COVID-19) Regulation 2020 (Regulation), which commenced on 24 April 2020 and gives effect to the National Cabinet Mandatory Code of Conduct – SME Commercial Leasing Principles During COVID-19.

Who does the Regulation apply to?

The Regulation applies to business involved, for example, in the manufacture, sale or supply of goods and/or services, and who are classified as an “impacted lessee” – that is, a tenant who:

1. is subject to a commercial lease;

2. qualifies for the JobKeeper scheme under the Commonwealth Coronavirus Economic Response Package (Payments and Benefits) Rules 2020; and

3. had a turnover of less than $50 million in the 2018-2019 financial year.

Are there any kind of commercial leases that the Regulation does not apply to?

The Regulation does not apply to leases which were entered into after 24 April 2020, unless they were was entered into pursuant to an option to extend or renew.

It also does not apply to leases made under the Agricultural Tenancies Act 1990.

What does the Regulation do?

The purpose of the Regulation is to regulate the rights of landlords and tenants in relation to the enforcement of certain commercial leases during the pandemic period.

For example, under the Regulation:

1. A landlord is prohibited from taking action against an impacted lessee on the grounds of a breach of the commercial lease, such as: