Home Commercial trading Takeaways from COVID-19 Commercial and Retail Lease Litigation and Decisions

Takeaways from COVID-19 Commercial and Retail Lease Litigation and Decisions

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The National Code of Conduct adopted by the National Cabinet in response to the COVID-19 pandemic in 2020 provides a set of relief and resolution processes for rental disputes arising from COVID-19.

For business owners, there are five key takeaways from decisions made in states and territories about enforcing the National Code of Conduct:

1. COVID-19 Commercial Lease Relief legislation provides commercial tenants with a relatively low threshold to demonstrate their eligibility to request rent relief.

2. Commercial tenants are likely to become eligible for rental relief if they:

  • can prove that their business is experiencing a 30% overall reduction in turnover or income;
  • do not voluntarily choose to go out of business; and
  • rely on more than screenshots of bank accounts and emails to demonstrate the reduction in their business activity (such as BAS statements, income statements, tax returns or business records).

3. The general position in NSW and Victoria is that all tenants in shared premises are eligible for rental relief if one of the tenants qualifies.

4. Good faith negotiations are necessary throughout the dispute resolution process for rent relief. Before bringing the dispute to court, landlords and tenants must:

  • engage in self-organized negotiation and mediation;
  • make and consider appropriate settlement offers such as rent waiver and deferral offers; and
  • complete the mediation process and receive a certificate attesting to the outcome of the mediation.

5. Once a tenant becomes eligible for rental relief, business landlords should be careful about exercising the power to forfeit and collect rent, including:

  • issue a notice of non-compliance with rent arrears;
  • termination of the lease;
  • call on a bank guarantee; and
  • requiring the tenant to continue paying the rent in full until the end of negotiations.

New South Wales

In New South Wales, resolution of disputes arising from the impact on commercial and retail leasing of COVID-19 must follow the 2021 (NSW) Retail and Other Commercial Leases (COVID-19) Regulation (New South Wales COVID Regulations), which expressly incorporates the principles of the national code of conduct.

Business owners and tenants in New South Wales can learn the following from decisions made under the NSW COVID Regulation:

  • for a single commercial tenant to be an ‘affected tenant’ for rights under the NSW COVID Regulation:
    • the tenant does not need to prove that the reduction in their company’s income or turnover is related to COVID-19, as long as the tenant can prove that the reduction is at least 30% (Cong v Ning [2021] NSWCATAP 292);
    • the tenant can receive payments from job seeker in addition to receiving payments from JobKeeper during the same period and remain eligible as an impacted tenant (Cong v Ning [2021] NSWCATAP 292); and
    • the document constituting a “commercial lease” does not need to bear the title of “lease”, as long as the effect of the document (such as a deed of lease assignment) is an agreement relating to the rental of premises for commercial purposes (NTT Australia Digital Pty Ltd v Cover Genius Services Pty Ltd [2020] NSWSC 1378);
  • when there are several tenants in the same premises as the roommates:
    • it suffices for one of the tenants to be eligible for JobKeeper payments for all roommates to be ‘affected tenants’ for rights under the NSW COVID Regulation (Cong v Ning [2021] NSWCATAP 292);
  • Once a tenant is an ‘affected tenant’ under the NSW COVID Regulation:
    • the landlord would be prohibited from giving notice under Section 133E of the Conveyancing Act 1919 (NSW) regarding non-payment of rent by the tenant and preventing the tenant from exercising the option to renew ( Highlands on a Plate Ltd v Roloz Pty Ltd [2021] NSWSC 1072);
    • landlord must provide tenant with a 50% waiver and 50% rent reduction in accordance with the Code of Conduct (Newlife Center Pty Ltd v Dymocks Book Arcade Pty Ltd [2021] NSWCATCD 26);
    • the landlord does not have the right to call on a bank guarantee for the non-payment of rent and expenses by the tenant:
      • after the end of the lease (Tsoukalas against Nguyen (International) Trading Co Pty Ltd [2021] NSWCATCD 30); Where
      • if the lease is terminated slightly before the start of the NSW COVID settlement and the termination was related to the impact of COVID19 (Sneakerboy Retail Pty Ltd v Georges Properties Pty Ltd [2020] NSWSC 996);
    • the tenant is not entitled to a reduction in expenses for the period in which he voluntarily chooses not to negotiate, as opposed to the inability to negotiate (Newlife Center Pty Ltd v Dymocks Book Arcade Pty Ltd [2021] NSWCATCD 26);
  • When the landlord enters into rent negotiation with the tenant, the good faith requirement means that:
    • parties must first attempt their own renegotiations and enter into mediation before a dispute can be brought to the appropriate forum for decision (Sneakerboy Retail Pty Ltd v Georges Properties Pty Ltd (No 2) [2020] NSWSC 1141);
    • the landlord cannot require the tenant to continue paying the full rent until the rent negotiation process is complete (Darzi Group Pty Ltd v Nolde Pty Ltd [2021] NSWSC 774);
    • the landlord cannot request financial statements for fiscal years 2018 or earlier for the purpose of assessing the impact of COVID-19 on the tenant’s business because it is too far from the start of the pandemic (Darzi Group Pty Ltd v Nolde Pty Ltd [2021] NSWSC 774);
    • the tenant must respond to the landlord’s rent waiver and deferment offer and participate in mediation (Lstar Holdings Pty Ltd v Ta [2021] NSWCATCD 62).

Victoria

In Victoria, the COVID-19 Omnibus (Emergency Measures) (Commercial Baux and Licenses) Regulations 2020 (Vic) (Victorian COVID Settlement) operates to regulate dispute resolution processes for Victorian commercial landlords and tenants affected by COVID-19. Victoria business owners and tenants can learn the following from decisions made under the Victorian COVID Settlement:

  • for a tenant to appropriately claim rent relief under the Victorian COVID Settlement:
    • a series of emails and attachments regarding a request for rent relief should be read together as a single request for COVID relief by a tenant (Solitaire Mode Pty Ltd v Diakonidis [2021] VCAT 918; Tzilantonis v S&C Thomas Holdings Pty Ltd [2021] VCAT 486);
    • the tenant must provide information such as BAS statements, income statements, tax returns and business records to prove a decrease in turnover or income, rather than relying on a bank income statement (Solitaire Mode Pty Ltd v Diakonidis [2021] VCAT 918);
    • the tenant must provide proof of all income associated with the premises when calculating their drop in turnover, including commercial income and additional or passive income such as sublet rents (Zeini v Inner Metropolis Holdings Pty Ltd [2021] VCAT 243);
    • the tenant must provide proof that they are eligible for JobKeeper payments, and for a tenant that is a business, the tenant must prove that they have at least one employee to meet this requirement (PS Market Pty Ltd v Brijcam Nominees Pty Ltd (Building and property) [2020] VCAT 1468);
    • the tenant rather than a third party must apply for rent relief directly. For a tenant who is a business, this means that the business owner must apply directly (B&D Gippsland Investments v Lay [2021] VCC 993);
    • parties must first participate in their own negotiations and small business commission process to reach a settlement agreement before seeking to resolve disputes at the tribunal level (R&D Health Clubs Pty Ltd v Ling Wang Pty Ltd [2021] VCAT 349);
  • when there are several roommates in the same premises:
    • it suffices for one of the tenants to qualify for eligibility under the Victorian COVID Regulation for all tenants of the premises to be entitled to relief (Zeini v Inner Metropolis Holdings Pty Ltd [2021] VCAT 243.

Queensland

In Queensland, the Retail and Other Commercial Leases (COVID 19 Emergency Response) Regulation 2020 (Qld) regulates the process for resolving disputes resulting from the impact on commercial leases due to COVID-19 (Queensland COVID Regulation). Queensland business owners and tenants can learn the following from the decision made under Queensland’s COVID regulation:

  • parties must first participate in their own negotiations and small business commission process to reach a settlement agreement before seeking to resolve disputes at the tribunal level in order to meet the jurisdictional requirement to escalate the settlement of disputes. court level disputes (Maxwell & Perandis Pty Ltd v Aztech Australia Pty Ltd).

Western Australia

In Western Australia, the Commercial Tenancies (COVID-19 Response) Regulations 2020 (WA) (WA COVID regulation) provides the dispute resolution process and related protection for business owners and tenants affected by COVID-19. Business owners and tenants in WA can learn the following from decisions made under the WA COVID Regulation:

  • for a tenant to appropriately request rent relief under the WA COVID regulation:
    • the tenant must be an “eligible tenant” during the emergency period and must have requested relief before the end of the emergency period, although the date for requesting relief may be extended beyond the end of the emergency period. the emergency period (Millennium Sports Pty Ltd v Vinciullo Holdings Pty Ltd [2021] WASAT 109);
    • the extent of financial information required to prove eligibility for rent relief varies on a case-by-case basis, but screenshots and emails are generally not sufficient as adequate and accurate information for a request for rent relief valid rent (Ioppolo Nominees Pty Ltd and Major [2021] WASAT 88; Van der Feltz and Rispoli [2021] WASAT 84).


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