19 January 2021
Qualifying for COVID-19 rent relief and the enforceability of deeds
The recent Supreme Court of New South Wales decision of NTT Australia Digital Pty Ltd v Cover Genius Services Pty Ltd serves as a reminder to all that once a deed has been signed, it can be enforceable even if copies executed by both parties haven’t been exchanged. It also provides timely insight on what tenants must do to qualify for COVID-19 rental relief.
NTT leased premises from Perpetual and Dexus (Dexus Entities). NTT sub-leased the premises to a third party, Society One, before negotiating an assignment of the lease to Cover Genius Services (CGS).
A deed of assignment of the lease (Deed) between NTT, CGS and the Dexus Entities was executed in January 2020 by CGS, February 2020 by NTT and finally, in March 2020 by the Dexus Entities. CGS and NTT exchanged their counterparts of the Deed electronically, whilst the Dexus Entities required original counterparts for their execution and did not provide executed counterparts until July 2020.
CGS nonetheless fitted out and moved into the premises in February 2020.
At the end of March 2020, CGS repeatedly sought rental relief from the Dexus Entities due to the financial impacts of COVID-19 on the business.
When attempts to negotiate failed, CGS claimed that it had no lease with any of the parties and that they instead had a mere contractual licence with Society One to occupy the premises. CGS failed to perform any obligations under the Deed and lease and failed to pay the rent and outgoings.
The Dexus Entities claimed the outstanding debt from NTT, and NTT commenced these proceedings against CGS seeking, amongst other things, specific performance of the Deed.
Was the Deed enforceable?
A deed is enforceable, even though counterparts have not been exchanged, as long as it has been signed, sealed and delivered. “Delivery” in this context does not mean “handed over” to the other side. It means the party has done an act that evinces an intention to be bound.
CGS’ key arguments were that the Deed was not enforceable as the parties had agreed it would be delivered by exchange of counterparts and CGS’ electronic delivery of the signed execution page in January was not “delivery” of the Deed; that before any exchange of counterparts had occurred, CGS indicated it no longer proposed to complete the transaction so it was entitled to withdraw and recall its signed version of the Deed, and that the words and conduct of the parties showed that they intended that the Deed had to be exchanged in counterparts in accordance with “usual conveyancing practice” (where a document is not operative until exchange).
To determine this issue, the Court looked at the conduct of CGS. It noted that CGS executed the Deed in January and emailed the signed version to the other parties, querying whether anything further was required from its side. There was no reference in the email to suggest there was a condition placed on electronic delivery of the execution pages nor any reference to exchange of documents. CGS pressed for and obtained consent to enter the premises approximately two days after signing the Deed and then began fit-out works. CGS occupied the premises from February 2020. The Court said this conduct demonstrated an intention to be bound immediately upon execution and delivery of the Deed, and not only upon exchange (by electronic or hard copy) of counterpart deeds. Further, the Court said that there was nothing in the documentation or communications which suggested that the parties intended there be an exchange of deeds “to conform with usual conveyancing practices”.
Protection for tenants under the COVID-19 Regulations
Another timely issue that the Court had to consider was CGS’ argument that the Court should have regard to the operation of the commercial and retail leasing regulations introduced earlier this year by the COVID-19 Legislation Amendment (Emergency Measures) Act 2020 (NSW) (COVID-19 Regulations). CGS asked the Court to refer the parties to negotiation and mediation and limit any declaration or order to an amount equivalent to 50% of the rent and outgoings provided for in the lease.
The Court cited the recent Supreme Court cases run by Bartier Perry, Sneakerboy Retail Pty Ltd trading as Sneakerboy v Georges Properties Pty Ltd No. 1 & 2 (see this link to our earlier insights), which outline the application of the COVID-19 Regulations.
Under the Regulations, an “impacted lessee” (an entity that qualifies for the “JobKeeper scheme” and has a turnover of less than $50 million in the 2018-2019 financial year) can request the lessor to renegotiate the rent payable, and other terms of the impacted lease.
CGS’ evidence was that it had enrolled for the JobKeeper scheme; that an entity in the group of companies to which it belonged had received payments; and that the group’s turnover and net revenue for the 2018 to 2019 financial year was less than $50 million.
However, the Court accepted NTT’s submission that it would be difficult for the Court to be satisfied on the evidence provided that CGS qualified for the JobKeeper scheme. A “receipt” of a payment is not the same as an entitlement to it. Further, CGS was only incorporated in August 2019 meaning that there were doubts as to the availability of the necessary comparison period for the purposes of the JobKeeper scheme.
Even though the Court did not allow CGS to rely on the COVID-19 Regulations, it did order that if CGS notified the other parties that it sought rent relief under the COVID-19 Regulations, the parties were to attend mediation in accordance with the Civil Procedure Act 2005.
This case is relevant to all commercial transactions which involve the execution of a deed. It is a reminder that all parties to a deed do not need to complete the exchange (electronically or by hard copy) of executed versions of the deed for it to be valid and enforceable. It only requires evidence of an intention to be bound.
As to rent relief under the COVID-19 Regulations, tenants must provide substantive evidence to the Court to prove they are an “impacted lessee” under the COVID-19 Regulations, which may be particularly difficult if the lessee entity has only been recently incorporated.
If you require any advice regarding the validity and enforceability of deeds, assistance with negotiation of retail or commercial leases, or advice about the effect of the COVID-19 Regulations, please contact Bartier Perry either directly or through our online rent negotiation legal service.
Authors: David Creais & Rebecca Renshaw