The NSW government legislated a code in April to govern how commercial rents and landlords relief applies, so why is there so much confusion?

Personally I have waited for this simple explanation and hence wrote this blog.

Basically for 6 months you are entitled to a reduction in rent in % terms equal to your reduction in turnover. This reduction is 1/2 rent waived (you do not need to pay this ever) and ½ rent deferred (you do need to pay this back later), that’s it and negotiations take place on how you would like that to look.

If you have a 30% reduction in turnover, this means a 15% rent waiver and 15% rent deferral e.g. $100 rent is $15 waived and $15 deferred, it is your right to pay $70. However you may choose to pay $85 as you will only have to pay the $15 deferred back later.

 

The regulation provides that a lessor may not take any ‘prescribed action’ against an ‘impacted lessee’ for a breach of a ‘commercial lease’ during the ‘prescribed period’ if the breach consists of:

  • a failure to pay rent,
  • a failure to pay outgoings or
  • a failure to be open for business during the hours specified in the lease.

 

Under the regulation, the following terms are defined:

  1. a ‘prescribed action’ means taking action such as evicting a tenant, exercising a right of re-entry, recovery of the premises, distraint of goods, forfeiture, damages, requiring payment of interest or fee on unpaid rent, recovery of the security bond, performance of obligations by the lessee under the lease, possession, termination of the lease;
  1. a lessee is an ‘impacted lessee’ if they qualify for the JobKeeper scheme under sections 7 and 8 of the Coronavirus Economic Response Package (Payments and Benefits) Rules 2020, and the lessee’s turnover in the 2018-2019 financial year was under $50 million. Turnover (excluding if lessee is a franchisee or corporation) is the turnover of the business conducted by the lessee;
  1. a ‘commercial lease’ means a retail shop lease but excludes a lease entered into after the commencement of the Regulation, a lease under the Agricultural Tenancies Act 1990 or a commercial lease within the meaning of Schedule 5 to the Conveyancing (General) Regulation 2018;
  1. the ‘prescribed period’ means the period ending 6 months after the Regulation commences (i.e. 24 October 2020).

Under clause 7 of the regulation,

  • the lessor must not take or continue to take prescribed action against an impacted lessee without having first renegotiated in good faith the rent payable under, and other terms of, the commercial lease.
  • Such negotiations are to have regard to the economic impacts of COVID-19 and the leasing principles set out in the National Code of Conduct.
  • However, the regulation does not prevent a lessor from taking a prescribed action on grounds not related to the economic impacts of COVID-19.

The Regulation will be repealed on 24 October 2020.

Retail and Other Commercial Leases (COVID-19) Regulation 2020 commenced on 24 April 2020 to give effect to the National Cabinet Mandatory Code of Conduct – SME Commercial Leasing Principles During COVID-19 adopted by the National Cabinet on 7 April 2020.

https://www.legislation.nsw.gov.au/regulations/2020-175.pdf

 

Landlords get NSW Land Tax Relief

The NSW Government announced a land tax relief measure on 13 April 2020 to enable eligible landlords:

  • to apply for a land tax concession of up to 25% of their 2020 calendar year land tax liability, and
  • to have any outstanding land tax liability deferred for up to three months.

The concession will be limited to the lower of 25% and the rent relief offered to a tenant.

Landlords will be eligible where:

  1. for commercial landlords – have commercial tenants with a turnover of less than $50 million and have experienced at least 30% reduction in revenue as a result of the COVID-19 pandemic; and
  1. for residential landlords – have residential property tenants struggling to make rental payments who have suffered a loss of income of at least 25% due to the COVID-19 pandemic.

Commercial landlords will be offered the land tax concessions if they pass savings of the same value or higher on to tenants.

https://www.revenue.nsw.gov.au/news-media-releases/covid-19-tax-relief-measures/covid-19-coronavirus-and-land-tax

 

Like the Meer cats in the insurance ad say “simpals” 🙂

Please call us if you would like to discus further

Adrian and the VJC Team

General Advice warning: the information in this article is general in nature, it is not advice specific to your needs. If you want to act upon the information in this article then you should seek advice from a qualified professional. VJC WM accepts no liability to any party for acting from this information unless they have sought advice in a formal engagement with VJC WM for this purpose.