Commercial leases and COVID-19 FAQs
Answers to commonly asked questions from small business tenants and lessors about support for retail and commercial landlords.
Updated 15 September 2021
Overview of commercial leasing changes
On 14 July 2021, the NSW Government enacted the Retail and Other Commercial Leases (COVID-19) Regulation 2021 (the Regulation). Amendments passed on 13 August 2021 provide even greater protections to impacted tenants by reinstating National Cabinet’s Commercial Leasing Code of Conduct.
The Regulation ensures that the economic impact of COVID-19 is shared by property owners and tenants. The protections in the Regulation, combined with the land tax concessions and the newly established Commercial Landlord Hardship Fund, will help limit the long- economic damage of COVID-19 and maximise the number of businesses that can resume normal operation when public health orders are lifted.
Under the Regulation, property owners must negotiate rent relief agreements with eligible tenants in financial distress due to the COVID-19 public health orders.
In negotiating these agreements, property owners and tenants must have regard to the leasing principles in the Code of Conduct, and the economic impacts of COVID-19.
Under those principles, property owners are required to offer tenants rent relief proportionate to the tenant’s decline in turnover. Waivers should make up at least 50 per cent of any rent relief provided. Rental deferrals make up the balance.
Don’t you already have support measures in place for commercial tenants and property owners? What’s different with this new measure?
The Regulation implemented on 13 July 2021 introduced mandatory for commercial property owners and eligible tenants. By reinstating the Code of Conduct, these protections have been taken a step further to bring both parties to the table to renegotiate rent relief consistent with the leasing principles.
Many parties to a lease that existed in 2020 will have already been subject to the requirements of the Code of Conduct, which will operate similarly this time around.
Under the changes, property owners of tenants with turnover up to $50 million that are eligible for one of the COVID-19 grants cannot take certain actions against their tenant (e.g. evict their tenant) unless they have renegotiated rent and attempted mediation.
For a six-month period (13 July 2021 to 13 January 2022), commercial and retail property owners cannot take certain actions against an eligible tenant (e.g. evict an eligible tenant) unless they have first renegotiated rent and attempted .
Commercial property owners and eligible tenants must negotiate rent relief agreements by taking into consideration the following principles in National Cabinet’s Code of Conduct on commercial tenancies (unless otherwise agreed by both parties):
- Landlords must not terminate leases for non-payment of rent
- Tenants must remain committed to the terms of their lease, subject to any amendments negotiated, and material failure to do so will forfeit additional COVID-19 protections provided to tenants
- Landlords must offer tenants proportionate reductions in rent (in the form of deferrals and waivers) of up to 100 per cent of the amount ordinarily payable, in proportion to the decline in the tenant’s trade.
- Rent waivers, as opposed to deferrals, must constitute at least 50 per cent of the rent reduction provided by landlords (in negotiating this, regard must be had to the landlord’s financial ability to provide such a waiver)
- Any rent deferral must be amortised over the balance of the lease term and for a period no less than 24 months, whichever is greater, unless otherwise agreed by the parties
- Landlords must pass any reduction in statutory charges (e.g. land tax, council rates) to the tenant
- Landlords should seek to share any benefit received due to deferral of loan payments by a bank or otherwise with the tenant in a proportionate manner
- Landlords should, where appropriate, seek to waive recovery of any other expense (or outgoing payable) by a tenant under the lease terms during the period the tenant is unable to trade
- Repayment of other (non-rent) expenses should not commence until the earlier of the COVID-19 pandemic ending (as defined by the Australian Government), or the existing lease expiring
- Landlords must not charge fees or interest on rent or fees that are waived or deferred
- Landlords must not draw on a tenant’s security for the non-payment of rent (be this a cash bond, bank guarantee or personal security) unless agreed by the tenant and landlord
- Tenants should be allowed to extend their lease for an equivalent period of any rent waiver/deferral period.
- Landlords must freeze rent increases (except for retail leases based on turnover)
- Landlords may not apply any prohibition or levy any penalties on tenants that reduce operating hours or cease to trade during the COVID-19 pandemic.
Under the Regulation, property owners must renegotiate rent with eligible tenants in good faith having regard to the leasing principles in the Code of Conduct and the economic impact of the COVID-19 pandemic.
Under the leasing principles, property owners are required to reduce rent in proportion to the tenant’s decline in turnover. This means if a tenant has experienced a 40 per cent decline in turnover due to COVID-19, then the property owner must provide a 40 per cent reduction in rent.
As a default position, at least 50 per cent of any rent relief must be in the form of a rent waiver with the remainder a rent deferral. Any deferred rent must be paid back over the balance of the lease or for a period of no less than 24 months, whichever is greater.
Parties can negotiate rent relief for whatever period they determine appropriate.
As a starting point, property owners should provide rent relief for as long as the tenant is impacted by restrictions. This could be determined by referring to the period for which the tenant receives the JobSaver or the Micro-business Grant payments.
To determine decline in turnover, parties should use the comparison periods the tenant relied on when applying for the COVID-19 grants as a starting point.
For example, if a tenant is eligible for JobSaver because they experienced a 40 per cent decline in turnover from 12 to 26 July compared to the corresponding period in 2019, the property owner may agree to provide rent relief of 40 per cent, with at least half being a waiver.
However, parties are also free to determine an alternative comparison period that works for them. If you are unsure what comparison period to use, you may want to get legal advice to determine your best option.
Regardless of the comparison used, tenants should provide evidence of their decline in turnover to their property owner to help them calculate the appropriate rent reduction. Evidence could include a Business Activity Statement (BAS) or an Accountant’s Letter.
If a tenant’s circumstances change, they can make a subsequent request to negotiate future rent.
Property owners and eligible tenants should consider how to treat any previously deferred rent as part of the rent relief negotiations. Parties should come to an agreement that works for their individual circumstances.
When applying for a COVID-19 grant, businesses will generally not include JobKeeper and JobSaver payments and other NSW Government COVID-19 grants in their calculation of aggregated annual turnover and decline in turnover.
However, for the purposes of calculating the level of rent reduction, JobSaver, Microbusiness Grant and Business Grant payments should be included as part of a tenant’s turnover. This is because these payments can be used to help pay rent (unlike JobKeeper in 2020 which could only be used to pay employees).
I am now selling goods from a warehouse and not the shopfront I lease, should my online sales be considered when calculating my decline in turnover?
Yes, the tenant’s turnover from online sales should be considered when calculating the level of decline in turnover.
The Regulation requires a party to a lease that is asked to negotiate to respond within 14 days of receiving the request or another period if agreed to by both parties.
The prescribed period applies from 13 July 2021 to 13 January 2022. Lessors cannot take prescribed actions against an eligible in this period unless they comply with their obligations to renegotiate rent and mediate.
Tenants in financial distress and their property owners should start the process of negotiating rent relief agreements as soon as possible.
Support measures will be reviewed regularly as the COVID-19 pandemic has created a rapidly changing environment, and we must ensure the rules continue to be appropriate.
If your tenant can demonstrate that they are in arrears since 13 July 2021 because they are financially distressed due to the COVID-19 public health orders you must seek to negotiate a rental abatement agreement—consistent with the principles of the Code of Conduct—and engage in mediation.
All other situations will need to be considered based on individual circumstances.
There is nothing in the Regulation preventing lessors from taking action at any time for breaches that occurred prior to the 13 July 2021.
The Regulation has been published on the Legislation NSW website.
My situation relates to events before the start of the current leasing regulations on 13 July 2021. What regulations applied then and how do they work?
Protections were in place for commercial tenants prior to 13 July 2021. See commonly asked questions about the Retail and Other Commercial Leases (COVID-19) Regulation 2020.
A commercial or retail tenant will be eligible for the rent relief protections provided in this package if their business has annual turnover of less than $50 million and is eligible for any of the following supports: the 2021 COVID-19 Micro-business Grant, 2021 COVID-19 Business Grant or the 2021 JobSaver Payment.
Generally, businesses that have experienced a decline in turnover of at least 30 per cent due to the public health orders will be eligible. Not-for-profits must have at least a 15 per cent decline, corresponding with their eligibility under the JobSaver payment.
Charities will also be eligible for the protections in the package provided they meet the same eligibility criteria.
The $50 million annual turnover threshold will be applied in respect of franchises at the franchisee level, and in respect of retail corporate groups at the group level (rather than at the individual retail outlet level).
To be eligible, tenants must provide their property owner with:
- Tax returns and/or Business Activity Statements to demonstrate an annual turnover of less than $50 million in 2020-21
- Evidence they qualify for at least one of the following:
- 2021 Micro-business Grant
- 2021 Business Grant, or
- 2021 Job Saver Payment.
This will typically be a remittance or bank statement showing the tenant has received the relevant grant.
Tenants that have not submitted an application or are waiting to be approved for one of the grants, may still be eligible for protections. These tenants must provide their property owner with evidence they have experienced a decline in turnover of 30 per cent or more due to the public health order over a minimum 2-week period commencing 26 June 2021 compared to:
- the same period in 2019, or
- the same period in 2020, or
- the 2 weeks immediately prior to any restrictions, 12 June to 25 June 2021.
This evidence will generally be a letter from a qualified accountant, registered tax agent or registered BAS Agent. There are templates for these letters available on the Service NSW website.
Tenants must also provide property owners with sufficient documentation to demonstrate actual decline in turnover, to calculate rent reduction. Property owners should act reasonably and not place onerous requests on tenants for documentation.
Businesses and not-for-profits that have previously received the Commonwealth Disaster Payment are eligible for protections under the Regulation if they transition to receiving either the Micro-business Grant or the JobSaver payment.
I am not eligible for a grant because I opened my business after 1 June 2021, am I eligible for protections?
Businesses and not-for-profits that opened after 1 June 2021 can only receive a grant, and therefore the commercial lease protections, if their grant application is approved by the Hardship Review Panel.
More information on the Hardship Review Pathway will be available soon on the Service NSW website.
Businesses and not-for-profits that did not qualify for the 2021 Business Grant may still be eligible for protections if they qualify for the 2021 Micro-business Grant or the 2021 JobSaver Payment which used different comparison periods for the decline in turnover test.
More information on the eligibility for these programs is available here:
The Regulation covers holdover leases, but does not cover new leases entered into after 26 June 2021.
The Regulation does not stop property owners from deciding not to renew the lease of an eligible tenant at the end of the lease period.
If the lease passes the land tax liability through to tenants, how should land tax concessions for landlords be treated when negotiating rent relief?
Commercial property owners that provide rent relief to eligible tenants will be entitled to land tax relief of equivalent value, up to a maximum of 100 per cent of their land tax liability for 2021 on the relevant property. Property owners will receive a waiver on land tax if they are yet to pay, or a rebate of previously paid land tax.
Some leases may stipulate that the tenant is liable to pay land tax, meaning by extension they are entitled to any land tax reduction as a pass-through.
The land tax concession is designed to provide support to landlords that negotiate rent relief and is not intended as an additional support measure for tenants on top of negotiated rent reductions.
In circumstances where land tax is passed on to the tenant, parties may agree to vary the lease in a way that requires the tenant to pay the pre-concession land tax amount, allowing the property owner to benefit from the land tax waiver/ discount.
Disputes and mediation
Commercial property owners and tenants should work together to negotiate a rent relief agreement. Where parties are unable to do this, they must attend mediation through the Small Business Commission.
Interim arrangements for urgent matters involving a threatened or actual eviction, can be sought through NSW Civil and Administrative Tribunal or the courts.
The mediator cannot impose any outcome but, if a mediation is successful, parties can enter a binding deed.
Although parties are usually free to mediate in any way they wish, the Regulation specifically requires certification from the NSW Small Business Commission that a mediation has failed prior to taking any action.
is a confidential and cost-effective way to resolve a disagreement that you can’t resolve by yourself.
Mediation helps parties to a dispute find settlement options that they can both accept, without having to go to court. Mediation involves a neutral third-party (the mediator) holding a meeting with the main parties to the dispute. The mediator will speak to the parties privately, as well as altogether, to help them explore all available options and try to find the best one that will work for all.
Mediation can be done in-person or online.
For standard matters, the Small Business Commission aims to offer a date within 5 weeks of application.
For urgent matters, mediation can be arranged within days.
For every matter, the Small Business Commission aims to set a date and time that works best for all parties to the dispute.
Where mediation is unsuccessful, parties can pursue action through the NSW Civil and Administrative Tribunal or the NSW civil courts.
Interim arrangements for urgent matters involving a threatened or actual eviction, can be sought through NSW Civil and Administrative Tribunal or the courts.
You should get legal advice before commencing any action in the Tribunal or the courts.
It is in the interests of all commercial property owners and financially distressed tenants to negotiate mutually beneficial rent relief agreements. The NSW Government will support parties to do this by scaling up the Small Business Commission to provide:
- advice on issues for property owners and tenants to consider when negotiating rent relief agreements; and
- additional mediation support to ensure disputes are resolved in a cost-effective and non-adversarial way.
What are the penalties for a property owner who breaks any of these new rules? For example, how will you enforce the rent freeze increase rule
If commercial property owners breach their obligations under the new Regulation, the tenant must seek mediation in the first instance through the NSW Small Business Commission.
Where the property owner and tenant are unable to reach an agreement through this process, the parties will be able to pursue action through the civil courts. In the case of a retail lease dispute, the matter may proceed through NSW Civil and Administration Tribunal (NCAT).
In the first instance, the tenant should contact Service NSW where staff will provide guidance on the appropriate next step.
The Small Business Commission’s mediation service can support tenants and property owners to resolve disputes in a cost-effective and non-adversarial way.
If mediation is not successful, parties may take their claim to the civil courts. Retail lease disputes can be heard in NSW Civil and Administration Tribunal (NCAT).
Property owner questions
The Regulation promotes collaboration and negotiation between property owners and tenants to ensure business continuity and a return to normal trading after public health orders are lifted.
We understand the package could place additional pressure on property owners, however, we are trying to share the load more evenly during these challenging times. We encourage businesses with loans to contact their banks for additional relief arrangements.
The recently announced Commercial Landlord Hardship Fund will provide additional support to smaller property owners whose main source of income is impacted because they have provided rent relief to their tenant.
Small commercial or retail property owners may be eligible for a monthly grant of up to $3,000.
The Commercial Landlord Hardship Fund will provide additional support to smaller landlords whose main source of income is impacted because of providing rent relief to tenants.
The Fund will provide a monthly grant of up to $3,000 for small commercial or retail landlords per property who provide rental waivers of at least the value of the hardship grant.
For example, if a landlord provides a rent waiver of $2,500 per month, they will be eligible for a grant of $2,500. If a landlord provides a rent waiver of $3,500, they will be eligible for a $3,000 grant.
To be eligible for the grants, landlords must:
- have total taxable unimproved landholdings of less than $5 million (excluding primary place of residence)
- have rental income as their primary source of income
- have a tenant that is eligible for protections under the Retail and Other Commercial Leases (COVID-19) Regulation 2021
- have provided rental waivers to their impacted tenants of at least the same value of the grant from 13 July 2021 that will not be claimed as 2021 land tax relief
- have not claimed land tax relief for the relevant property for rent reductions between 1 July 2021 and 31 December 2021.
Detailed eligibility criteria and fund guidelines are now available.
How to start the conversation of rent relief with the property owner or tenant
Glossary of commercial lease terms
Common commercial lease terms to help you read your lease.
- Speak to our Customer Service team on 1300 795 534 or send an online query
- Retail and Commercial Leases Support and Case Studies