COVID-19 Emergency Response Act 2020 and Commercial Leasing

 In Commercial & Property, News
COVID-19 Emergency Response Act 2020 and Commercial Leasing

On 8 April 2020, the COVID-19 Emergency Response Act 2020 (Act) came into effect. The Act was accompanied by the COVID-19 Emergency Response (Commercial Leases) Regulations 2020 (Regulations) on 16 April 2020. The Act incorporates some of the leasing principles in the Mandatory Code of Conduct.

The Act and the Regulations make a number of temporary modifications to South Australian law in response to the COVID-19 pandemic, including commercial leasing law.

The Act incorporates a number of measures that protect tenants of commercial leases affected by COVID-19.

Commercial Lease

The Act will apply to a “commercial lease” which is defined as:

(a) a retail shop lease within the meaning of the Retail and Commercial Leases Act 1995; or

(b) a lease under the Landlord and Tenant Act 1936; or

(c) any other agreement under which a person grants or agrees to grant another person for value a right to occupy premises for carrying on a business:

(i) whether or not the right is a right of exclusive occupation;

(ii) whether the agreement is expressed or implied; and

(iii) whether the agreement is oral or in writing, or partly oral and partly in writing.

Prescribed Period

The Act will apply for the “prescribed period” which means the period commencing on 30 March 2020 and ending on the day fixed by the Minister by notice in the Government Gazette.

Financial hardship

It is a requirement of the Act that the tenant must be suffering “financial hardship”. A tenant will be taken to be suffering financial hardship as a result of the COVID-19 pandemic if the tenant is eligible for, or receiving, a JobKeeper payment in respect of the business of the tenant (whether in their capacity as an employer or on their own behalf).

No prescribed action may be taken

Under a commercial lease, if a tenant is suffering financial hardship as a result of the COVID-19 pandemic, a landlord cannot take any prescribed action (e.g. evicting a tenant, exercising a right of re-entry, terminating the lease, distraining goods, suing for damages, requiring performance by a guarantor or any other remedy available to a landlord against a tenant) against the tenant on grounds of a breach of the lease during the prescribed period consisting of:

(a) a failure to pay rent;

(b) a failure to pay outgoings;

(c) the business operating under the lease not being open for business during the hours specified in the lease; or

(d) any other act or omission of a kind prescribed by the regulations for the purposes of this subsection

Where a landlord has already taken or commenced, but not yet completed or finalised a prescribed action, that action will be taken to be suspended until the end of the prescribed period.

No Breach or Termination

Any act or omission by a tenant in response to the COVID-19 pandemic will be taken not to amount to a breach of lease or constitute grounds for termination of the lease or the taking of any prescribed action by the landlord against the tenant.

Rent Increases

Rent under a commercial lease must not be increased during the prescribed period where the tenant is suffering financial hardship as a result of the COVID-19 pandemic.

This does not prevent the parties from reaching an agreement as to an increase in rent.

The provision does not apply to any rent or a component of rent determined by reference to turnover.

Land Tax

A landlord cannot require a tenant to pay land tax or require the reimbursement of land tax where the lessee is suffering financial hardship as a result of the COVID-19 pandemic. Note that there is already a restriction in place under the Retail and Commercial Leases Act 1995 that prevents a landlord from requiring a tenant to pay land tax or to reimburse the landlord for the payment of land tax.

Small Business Commissioner

A party to a commercial lease may apply to the Small Business Commissioner for any of the following:

(a) mediation of a dispute in relation to:

a. whether or not a tenant is suffering financial hardship as a result of the COVID-19 pandemic; or

b. issues that have arisen in relation to the COVID-19 pandemic:

i. arising from, or related to, the operation of the Act;

ii. arising from, or related to, the commercial lease; or

iii. related to any other matter relevant to the occupation of the premises or to a business conducted at the premises the subject of the commercial lease.

(b) a determination as to whether or not a tenant is suffering financial hardship as a result of the COVID-19 pandemic.

In determining whether or not a tenant is suffering financial hardship, the Commissioner must have regard to:

(a) whether or not the tenant is eligible for, or is receiving, a JobKeeper payment in respect of the business of the tenant; and

(b) any reduction in turnover of the business of the tenant during a specified period as compared with another specified period determined by the Commissioner as being relevant to the circumstances of whether or not the tenant is suffering financial hardship as a result of COVID-19.

A party may appeal any determination of the Commissioner in relation to whether a tenant or not a tenant is suffering financial hardship to the Magistrates Court.

Confidentiality

A person must not divulge or communicate personal information, information relating to business processes or financial information (including business turnover) obtaining in connection with the operation of the Act except with the consent of the person whom the information relates, the authorisation of the Commissioner, for the purpose of legal proceedings or to a police officer.

Mandatory Code of Conduct

The Mandatory Code of Conduct has not been enacted as law in South Australia. We will continue to monitor the situation as to further announcements on the implementation of the Mandatory Code of Conduct in South Australia.

The Act incorporates some of the leasing principles in the Mandatory Code of Conduct, including the following:

  1. a landlord must not exercise a right of re-entry or terminate a lease due to non-payment of rent where a tenant is suffering financial hardship during the COVID-19 pandemic period;
  2. a landlord must not draw on a tenant’s security for the non-payment of rent (whether a security bond, bank guarantee or personal guarantee) during the COVID-19 pandemic period; and
  3. rent must not be increased.

However, the Act does not incorporate other key leasing principles in the Code, including:

  1. landlords must offer tenants proportionate reductions in rent payable in the form of waivers and deferrals over a repayment period;
  2. tenants must comply with the lease; and
  3. where there is a material failure by a tenant to comply with any substantive terms of the lease, a tenant will lose its protection under the Code and a landlord may take enforcement action against the tenant.

The Small Business Commissioner has stated that the implementation of the Code in South Australia is still being considered and information about implementation will be released at a later date.

Johnston Withers Lawyers: Experience You Can Trust

If you are a landlord or a tenant affected by the COVID-19 pandemic, we can assist you in understanding your rights and obligations under the Act and the Mandatory Code of Conduct. Our commercial and property lawyers have extensive experience in acting for landlords and tenants in relation to all aspects of commercial and retail leases. If you need advice or direction from a lawyer, please contact Michael Stannard on (08) 8231 1110 or get in touch online.

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