April 2020

Moratorium on evictions under both commercial and residential leases

Landlords and tenants are currently facing uncertain times.

On 29 March 2020, the Prime Minister, Scott Morrison, announced that the States and Territories will be moving to put a six month moratorium on evictions under both commercial and residential leases if tenants encounter severe financial distress and are unable to meet their commitments. 

He indicated that measures would be put in place to encourage agreements between landlords, tenants and banks, in a bid to put businesses into hibernation until the COVID-19 crisis passes. 

The Prime Minister said "We need you to sit down, talk to each other and work this out … we need landlords and tenants to sit down and come up with arrangements that enable them to get through this crisis so on the other side, the landlord has a tenant, which is a business that can pay rent and the business is a business that can re-emerge on the other side of this and be able to go on and employ people on the other side of these arrangements. And we want the banks to help them achieve this outcome.”

But what does this actually all mean?

What we do know

The NSW Government has passed the following legislation, which enables the government to make regulations that cover the following matters in direct response to COVID-19:

  • An amendment to the Residential Tenancies Act 2010 (which also applies to tenancies under any other Act relating to the leasing of premises or land for residential purposes, such a boarding houses):

    • prohibiting a landlord/owner from recovering possession of a premises from a tenant/resident in particular circumstances;

    • prohibiting the termination of a residential tenancy agreement, occupancy agreement or site agreement by a landlord/owner in particular circumstances;

    • limiting or preventing the landlord/owner from exercising or enforcing any of its other rights under an agreement or relevant legislation; and

    • exempting a tenant/resident, or a class of tenants/residents, from the operation of a provision of the relevant legislation or any agreement relating to premises.

  • An amendment to the Retail Leases Act 1994 (which also applies to tenancies under any other Act relating to the leasing of premises or land for commercial purposes, such as agricultural tenancies):

    • prohibiting a landlord/owner from recovering possession of premises/land from a lessee/tenant in particular circumstances;

    • prohibiting the termination of a lease or tenancy by a lessor/owner of premises/land in particular circumstances;

    • limiting or preventing the lessor/owner from exercising or enforcing any of its other rights under an agreement or relevant legislation in particular circumstances; and

    • exempting a lessee/tenant, or a class of lessees/tenants, from the operation of a provision of the relevant legislation or any agreement relating to the lease/licence of premises/land.

What is unclear?

At this stage, the new legislation only provides general guidance which will underpin and govern the measures that the government ultimately puts in place.  What is meant by the term ‘in particular circumstances’ is currently unknown. 

We await the enactment of the regulations, which will contain the detail on what these measures really mean and how far reaching they will be.  We understand that such regulations may be 2-3 weeks away.

  • It is not clear how the government intends for the measures to apply to commercial tenancies.  Currently the legislation that has been amended relates directly to retail and residential tenancies, with the ability for the government to make regulations that relate to tenancies under other legislation such as the Agricultural Tenancies Act, the Boarding Houses Act and the Residential (Land Lease) Communities Act

  • In NSW there is no legislation which directly governs or regulates commercial tenancies (as there is in South Australia, for example, per the Retail and Commercial Leases Act 1995 (SA)).

Although it seems that the new legislation and proposed measures focus on providing tenants with relief during these unprecedent times, they will undoubtedly benefit landlords too.  These new measures will operate to hibernate certain leases during the lockdown period and allow both tenants and landlords to return to ‘business as usual’ once the crisis is over. 

Landlords can take comfort in knowing that their tenants will once again be able to carry on a successful business and pay rent once the crisis comes to an end, without the need to find a new, solvent tenant – which may be difficult to do right now – and without the need to start fresh with a new tenant and being obliged to offer incentives such as fitout contributions and rent free periods.

A clue to what’s ahead could also be illustrated by the National Cabinet’s agreed principles.  These are:

  • the reduction or waiver of rental payment for a defined period for impacted tenants;

  • the ability for tenants to terminate leases and/or seek mediation or conciliation on the grounds of financial distress;

  • commercial property owners should ensure that any benefits received in respect of their properties should also benefit their tenants in proportion to the economic impact caused by coronavirus;

  • landlords and tenants not significantly affected by coronavirus are expected to honour their lease and rental agreements; and

  • cost-sharing or deferral of losses between landlords and tenants, with Commonwealth, state and territory governments, local government and financial institutions to consider mechanisms to provide assistance.

Questions needing answering

We will be tracking regulations as released so that we can help provide answers to the most frequently asked questions by our clients:

  • Will rent continue to accumulate during the period of the COVID-19 crisis, leaving tenants with a huge arrears bill once the crisis ends? 

  • Will landlords be required to waive/discount rents during the period of the COVID-19 crisis, meaning tenants will be better placed to land on their feet and go back to ‘business as usual’ when the crisis ends? 

  • How will a landlord’s cashflow cope with the requirement to continue to pay the costs associated with the leased property (mainly being mortgage/finance costs, but also including rates and taxes, utilities, building maintenance costs, insurances, management fees, etc), if they are not collecting rent and outgoings payments from tenants? 

  • Even if landlords are able to secure mortgage relief with their banks (which may not be easily obtained from smaller or non-bank lenders), how do they avoid defaulting on these other payments, especially if their ability to exercise/enforce other rights under the lease (for example, drawing on bonds, bank guarantees, security deposits, personal guarantees, etc) may be limited or prevented?

More from our Prime Minister

Mr Morrison did foreshadow that “We will be working on measures … to ensure that if you aren't going to engage in that sort of cooperative activity between banks, between tenants and between landlords, then the sort of support that you might otherwise expect to receive, you will not receive.  … We are in uncharted territory, but the goal should be shared. And that is a business that can reopen on the other side, not weighed down by excessive debts because of rental arrears.  A landlord that has a tenant so they can continue into the future to be able to support the investments that they have made and banks that have clients, both the landlords and the businesses.  The three of them working together to ensure those businesses can get through and be there on the other side.”

We are here to help you do exactly what the Prime Minster has asked – we can sit down with you and help you talk to your landlord/tenant and work out a commercially suitable outcome.  We can review your lease, consider your particular situation and provide you with customised advice on the best way to proceed.  We can also ensure that any agreement you reach is properly documented and will be legally enforceable if issues do arise down the track. 

Bartier Perry will continue to inform you about developments in this area as they occur.

Authors: Kristie Carlile and Julia Yassa

Contributing partner: Melissa Potter

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