Friday, 22 May 2020
After several months requesting both the State and Federal Government act to support SME businesses dealing with commercial leasing challenges related to COVID-19, the South Australian Business Chamber welcomes rent relief measures introduced into SA law based on the National Cabinet’s Mandatory Code of Conduct (the Code).
The Code establishes good faith principles for re-negotiation of commercial leases and has been incorporated into further regulations introduced under the South Australian Covid-19 Emergency Response Act 2020 (SA).
How the new SA regulations give effect to the national Code of Conduct for SME Commercial Leases
The new regulations state that parties to a lease must have regard to the Code when negotiating rent relief, or if there is a disputed matter in relation to a commercial lease. In principle, it is designed to encourage landlords and tenants to work together to ensure business continuity. Parties are encouraged to negotiate suitable alternative arrangements with a backstop of mediation through the Small Business Commissioner or enforcement through the Magistrates Court.
Eligibility
The new regulations apply to commercial leases within the meaning of the Retail and Commercial Leases Act 1995 and the Landlord and Tenant Act 1936, including retail leases. As set out in the Code, the regulations prevent landlords from taking certain action against a tenant for failure to pay rent and/or outgoings or the business failing to operate during specific hours. An affected business is one that is suffering financial hardship as a result of the COVID-19 pandemic and is eligible for, or receiving, a JobKeeper payment and has a turnover of less than $50 million.
Negotiation of rent payable
The new regulations require parties to a commercial lease to make a genuine attempt to negotiate in good faith the rent payable and other lease terms having regard to the economic impacts of the COVID-19 pandemic on the parties as well as the provisions of the Code. The principles of the Code include a requirement for landlords to reduce rent in proportion to the trading reduction suffered by the tenant. This can be achieved by a combination of waivers and deferrals of rent. Waivers of rent must account for at least 50 per cent of the reduction in rent during the prescribed period, with the balance to be deferred over a period of no less than 24 months.
Prohibitions and Restrictions
The new regulations also mandate several prohibitions and restrictions relating to commercial leases in addition to those set out in the Code. For example, a landlord must not increase rent, require an affected tenant to pay or reimburse land tax or seek to draw down on any security such as bank guarantees or personal guarantees. If a landlord receives a waiver of land tax or a relief payment from the State Government as a result of the COVID-19 pandemic, the waiver or reduction must also be passed on to the tenant in the form of a waiver of rent payable.
Disputes
Disputes between tenants and landlords may be dealt with by application to the Small Business Commissioner who will undertake mediation. If the mediation is not successful, a party can apply to the Magistrates Court for a determination. The determination may result in a Court Order to implement the determination. It is important to note that the Magistrates Court cannot overturn an agreement already reached between parties from the beginning of the prescribed period being 30 March 2020, however it may vary an agreement as it applies from 15 May 2020.
The South Australian Business Chamber conducted a webinar on Tuesday where James Forde from KHQ Lawyers explained the details of the new regulations, and Ryan Stewart from Broadway Property provided advice on how to approach a commercial leasing negotiation under the new rules.
