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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 20 May 2022

Overview of commercial leasing changes

What actions has the NSW Government taken on commercial leases? Link directly to What actions has the NSW Government taken on commercial leases?

On 14 July 2021, the NSW Government enacted the Retail and Other Commercial Leases (COVID-19) Regulation 2021 (the Regulation) to provide protections for commercial tenants impacted by COVID-19.

Under the Regulation, property owners must negotiate rent relief agreements with eligible tenants in financial distress due to COVID-19.

Landlords of eligible tenants must also attempt before taking action in relation to a failure to pay rent, failure to pay or the business not being open during the hours specified in the lease.

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.

Amendments to the Regulation in March 2022 extended the requirement for mediation until 30 June 2022 for eligible tenants with an annual turnover of less than $5 million.

All protections relating to rent relief end on 13 March 2022.

Why has the Government taken action on commercial leases? Link directly to Why has the Government taken action on commercial leases?

The NSW Government’s commercial leasing protections are designed to share the economic impacts of COVID-19 between landlords and tenants, help limit the long- economic damage of COVID-19 and maximise the number of businesses that can resume normal operation.

It also aims to assist lessees and lessors to resolve disputes through negotiation and .

What are the legal protections for tenants? Link directly to What are the legal protections for tenants?

Between 13 July 2021 and 30 June 2022, commercial and retail property owners cannot take certain actions against an eligible tenant (e.g. evict an eligible tenant) unless they have attempted . Mediation protections cease on 13 March 2022 for tenants with an annual turnover greater than $5 million.

For certain periods, commercial property owners and eligible tenants were required to 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). The requirement to renegotiate rent ended for tenants with turnover of $5 million or more on 30 November 2021, and for tenants with turnover less than $5 million on 13 March 2022. 

Leasing principles in National Cabinet's Code of Conduct

  1. Landlords must not terminate leases for non-payment of rent. 
  2. 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. 
  3. 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.
  4. 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)
  5. 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
  6. Landlords must pass any reduction in statutory charges (e.g. land tax, council rates) to the tenant 
  7. 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
  8. 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
  9. 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
  10. Landlords must not charge fees or interest on rent or fees that are waived or deferred
  11. 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
  12. Tenants should be allowed to extend their lease for an equivalent period of any rent waiver/deferral period.
  13. Landlords must freeze rent increases (except for retail leases based on turnover)
  14. 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.

What rent reductions must property owners provide? Link directly to What rent reductions must property owners provide?

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.

For how long do property owners need to provide rent relief? Link directly to For how long do property owners need to provide rent relief?

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 should be determined by referring to the period for which the tenant received a NSW Government grant (or would have received it if the program continued).

The requirement to renegotiate rent ended for tenants with turnover of $5 million or more on 30 November 2021 , and for tenants with turnover less than $5 million on 13 March 2022.

My rent was due to be increased before 13 March 2022. Can it be increased now? Link directly to My rent was due to be increased before 13 March 2022. Can it be increased now?

Rent could not be increased between 13 July 2021 and 13 March 2022 for impacted lessees. Now, the lease conditions will determine when rent increases are to occur - landlords are not prevented from increasing rent, though it cannot be backdated before 13 March. 

My rent is due to be increased later in the year. Now 13 March 2022 has passed, can it be increased earlier, or by an additional amount to take into account that the previous two rent increases didn’t occur? Link directly to My rent is due to be increased later in the year. Now 13 March 2022 has passed, can it be increased earlier, or by an additional amount to take into account that the previous two rent increases didn’t occur?

Your lease document will set out the terms of the lease, including when rent increases are to occur and by how much. Parties may negotiate these terms, though rent increases cannot be backdated to during the moratorium on rent increases. 

If you are unsure how to interpret your lease, you may wish to seek legal advice to be sure of your rights and responsibilities. 

What period should be used to calculate decline in turnover for the purposes of rent reduction? Link directly to What period should be used to calculate decline in turnover for the purposes of rent reduction?

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 was 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.

How should deferred rent obligations from last year be treated? Link directly to How should deferred rent obligations from last year be treated?

It is up to the parties to consider how deferred rent may be repaid, taking into consideration the parties’ financial positions. Repayment may commence as soon as the parties agree, or the earlier of the COVID-19 pandemic ending (as defined by the Australian Government) or the existing lease expiring.  

Are NSW Government Grants considered as part of a tenant’s turnover? Link directly to Are NSW Government Grants considered as part of a tenant’s turnover?

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? Link directly to 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. 
 

When does my landlord need to respond to my request for rent relief? Link directly to When does my landlord need to respond to my request for rent relief?

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.

When do these rules apply from? How long will they last, and when will they be reviewed? Link directly to When do these rules apply from? How long will they last, and when will they be reviewed?

For tenants with an annual turnover greater than $5 million, the prescribed period in the Regulation applies from 13 July 2021 to 13 March 2022.

For tenants with an annual turnover of less than $5 million, the prescribed period in the Regulation applies from 13 July 2021 to 30 June 2022.

Property owners cannot take prescribed actions against an eligible tenant for certain breaches of the lease in this period unless they comply with their obligations to mediate and, in some circumstances, negotiate rent. 

Support measures will be reviewed regularly. 

Can a property owner evict a tenant if they have been in arrears prior to this announcement? Link directly to Can a property owner evict a tenant if they have been in arrears prior to this announcement?

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.

I am a sub-lessee. Do the NSW regulations apply to my sub-lease? Who should I negotiate with? Link directly to I am a sub-lessee. Do the NSW regulations apply to my sub-lease? Who should I negotiate with?

If you are a sub-lessee and meet the eligibility criteria of the Regulations, you are an impacted lessee under the Regulations and can ask your lessor (the sub-lessor, not the head-lessor) to renegotiate rent.

Can I take action for a breach that occurred prior to 13 July 2021?  Link directly to Can I take action for a breach that occurred prior to 13 July 2021? 

There is nothing in the Regulation preventing lessors from taking action at any time for breaches that occurred prior to 13 July 2021. 

Where can I find the Regulation?  Link directly to Where can I find the Regulation? 

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? Link directly to 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.

Can a tenant ask their landlord to extend their lease for an equivalent period of time of the agreed rent deferral? Link directly to Can a tenant ask their landlord to extend their lease for an equivalent period of time of the agreed rent deferral?

Under the Regulation, any negotiation should take into consideration the leasing principles set out in the National Cabinet’s Code of Conduct for Commercial Leasing (particularly principle 12). This may mean that parties agree to extend the length of the lease agreement to allow the lessee more time to make repayments, however parties are free to reach an alternate agreement that meets their needs. 

When can my landlord increase my rent again? Link directly to When can my landlord increase my rent again?

The Regulation prevents rent increases during the prescribed period until 13 March 2022. Beyond this date, landlords are not prevented from increasing rent, even if their tenant is still eligible for mediation protections.

For help with disputes about rent increases, the Commission offers a mediation service

Eligibility

Which leaseholders are eligible for the rent relief protections provided in this package? Link directly to Which leaseholders are eligible for the rent relief protections provided in this package?

Eligibility until 30 November 2021

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 was eligible for any of the following supports: the 2021 COVID-19 Micro-business Grant, 2021 COVID-19 Business Grant or the 2021 JobSaver Payment. Additionally, businesses that would have been eligible for one of these supports if they had not received the Commonwealth COVID-19 Disaster Payment are also eligible.

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.

Eligibility after 30 November 2021

From 1 December 2021, if a tenant with an annual turnover less than $5 million continues to meet the eligibility criteria for JobSaver or the Microbusiness Grant, despite these programs ending on 30 November, they will continue to be eligible for rent relief negotiations until 13 March 2022.

Landlords of tenants that have received protections for any period under the Regulation are also prohibited from taking actions for certain breaches of the lease between 13 July 2021 and 13 March 2022 without first attending mediation. This includes tenants with annual turnover up to $50 million.

Eligibility after 13 March 2022

From 14 March 2022, no tenant is eligible for mandated rent relief, however landlords may choose to continue providing rent relief if they wish.

Mediation protections, which prevent landlords taking certain actions without first attempting mediation, remain until 30 June 2022 for tenants with an annual turnover of less than $5 million.

How will franchises and corporate groups be treated? Link directly to How will franchises and corporate groups be treated?

The annual turnover thresholds 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).

How do I demonstrate to my property owner that I am eligible for the commercial leases protections? Link directly to How do I demonstrate to my property owner that I am eligible for the commercial leases protections?

Eligibility until 13 March 2022

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, or would qualify but for a COVID-19 Disaster Payment made to the lessee by the Commonwealth:
    • 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.

To negotiate rent relief between 30 November 2021 and 13 March 2022, tenants must provide evidence, such as that outlined above, to demonstrate:

  • they had an annual turnover of less than $5 million in 2020-21
  • they would have qualified for one of the following if it were still available:
    • 2021 COVID-19 Microbusiness Grant, or
    • 2021 JobSaver Payment.

Eligibility from 14 March 2022 until 30 June 2022

To be eligible from 14 March 2022, tenants must provide their property owner with:

  • Tax returns and/or Business Activity Statements to demonstrate an annual turnover of less than $5 million in 2020-21 
  • Evidence they qualify for at least one of the following, or would qualify but for a COVID-19 Disaster Payment made to the lessee by the Commonwealth:
    • 2022 Small Business Support Program
    • 2021 Micro-business Grant
    • 2021 Business Grant, or the
    • 2021 Job Saver Payment. 

Generally, tenants that have already established they are eligible for a NSW Grant and have an annual turnover of less than $5 million will not have to re-submit evidence to the property owner to receive mediation protections from 14 March until 30 June 2022.
 

I have received the Commonwealth Disaster Payment, am I eligible for protections? Link directly to I have received the Commonwealth Disaster Payment, am I eligible for protections?

Businesses and not-for-profits that would qualify for a NSW grant if they did not receive the COVID-19 Disaster Payment are eligible for protections under the Regulation.

I am not eligible for a grant because I opened my business after 1 June 2021, am I eligible for protections? Link directly to 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 has been approved by the Hardship Review Panel. 

Are holdover leases covered? Link directly to Are holdover leases covered?

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? Link directly to 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

What does it mean to enter “mediation” for a rental relief agreement? Link directly to What does it mean to enter “mediation” for a rental relief agreement?

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.

The Small Business Commission’s mediation service supports parties to resolve disputes in a cost-effective and non-adversarial way. Find out more information about mediation here.
 

Do I have to mediate through the NSW Small Business Commission?  Link directly to Do I have to mediate through the NSW Small Business Commission? 

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.  
 

How does mediation work? Link directly to How does mediation work?

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.

Find out more information about mediation here and to apply for mediation, download the application form.
 

How long does it take to arrange mediation after an application is made? Link directly to How long does it take to arrange mediation after an application is made?

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 do I go if my property owner won’t agree to provide any rental relief, even after mediation? Link directly to Where do I go if my property owner won’t agree to provide any rental relief, even after mediation?

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.  

How will the government support the negotiation of rent relief agreements? Link directly to How will the government support the negotiation of rent relief agreements?

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 Link directly to 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).
 

Who does a tenant complain to if they are threatened with eviction or not provided rent relief? Link directly to Who does a tenant complain to if they are threatened with eviction or not provided rent relief?

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

Isn’t this policy unfair on property owners?  Link directly to Isn’t this policy unfair on property owners? 

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.
 

How do I know if my tenant continues to be eligible under the Regulation? Link directly to How do I know if my tenant continues to be eligible under the Regulation?

Amendments to the Regulation on 24 September 2021 clarify that a landlord can ask their tenant for evidence that they continue to be an impacted lessee under the Regulation. The request for evidence must be reasonable and cannot be made more than once every two weeks. A landlord may, for example, ask their tenant to provide evidence every fortnight that they continue to qualify for a NSW government grant (or would continue to qualify if the relevant grant was still available).

What support is available for property owners? Link directly to What support is available for property owners?

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.

Property owners that receive this tax concession will also be able to defer their remaining land tax payments for three months.

The 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.

How does the hardship fund for commercial property owners work? Link directly to How does the hardship fund for commercial property owners work?

The Commercial Landlord Hardship Fund provides additional support to smaller landlords whose main source of income is impacted because of providing rent relief to tenants. 

The Fund provides grants of up to $3,000 per month per property to eligible small landlords who will or have experienced hardship as a result of providing rental relief to their tenant(s), under the Retail and Other Commercial Leases (COVID-19) Regulation 2021

Detailed eligibility criteria and fund guidelines are available here. 

How does the land tax relief for commercial property owners work? Link directly to How does the land tax relief for commercial property owners work?

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.

Property owners that receive this tax concession will also be able to defer their remaining land tax payments for three months

Detailed eligibility criteria and fund guidelines are now available.

How much land tax relief can I claim per property? Link directly to How much land tax relief can I claim per property?

If you pay land tax, each property you own has a taxable value which contributes to your land tax bill.

For each property, you may claim land tax relief in proportion to how much the property contributes to your land tax bill.

For example:

A commercial property owner has two properties with a combined taxable value of $2 million

Property A has a taxable value of $1.5 million

Property B has a taxable value of $500,000

Property A contributes 75% to of the property owners taxable land value.

Property B contributes 25% to the property owners taxable land value.

If a commercial property owner is seeking land tax relief for Property A, the maximum land tax relief they can claim for the property is the value of the waivers provided to property’s tenants, up to 75% of their total land tax bill, as this is the proportion the property contributes to their land tax bill.

 

How to start the conversation of rent relief with the property owner or tenant

Are there sample letters available? Link directly to Are there sample letters available?

Here are sample letters you can use to begin discussions on COVID-19 rental relief.

Glossary of commercial lease terms 

Common commercial lease terms to help you read your lease.

 

 

More information: