The NSW Government has now passed the Regulation necessary to give legal effect to the Commercial Leasing Code of Conduct which was announced by the Federal Government in early April.  New South Wales is the first state to enact the required legislative framework.

The new Regulation applies to both retail and commercial Leases in NSW and, as foreshadowed, only applies to those tenants who are eligible for the JobKeeper program.

For impacted tenants, there must be a renegotiation of the rent and other terms of the lease as set out in the Code.  The most important component of those negotiations is the reduction in rent which must correspond with the tenant’s reduction in revenue.  One half of the rent relief must take the form of a complete rent waiver, and the balance is to be dealt with as a rent deferral.  The rent deferral amount is then to be repaid by the tenant over a period of 24 months or the expiry of the Lease, whichever is the greater.

The Regulation provides for a prescribed period of 6 months (ie from 24 April 2020 until 24 October 2020) during which landlords are prohibited from taking certain enforcement actions under the Lease.

There are a number of leases which are not covered by the Regulations as follows:

  • Leases entered into after 24 April 2020 (other than by way of an exercise of option);
  • Leases under the Agricultural Tenancies Act; and
  • Residential tenancies.

Finally, the Regulation clarifies that Landlords are only prevented from taking enforcement action against a tenant on grounds which are related to the economic impacts of the COVID-19 pandemic.  This means that a Landlord can still take action in respect of all non COVID-19 related breaches.  For example, a Landlord can still act if a Tenant causes damage to premises or fails to effect insurance.

It remains critical that both Landlords and Tenants negotiate a deal in good faith and that any agreement which is reached is properly and clearly documented.

If you have any questions, please contact our office on (02) 9525 8688.