The operation of the National Cabinet Mandatory Code of Conduct for New South Wales has been extended to 28 March 2021 – but only for retail businesses with less than a $5 million turnover (previously $50 million). Retail businesses that have experienced a 30% (or more) decline in turnover in the December quarter 2020 compared to the December quarter in 2019 are eligible.
To recap, in April 2020, the federal government released the ‘National Cabinet Mandatory Code of Conduct – SME Commercial Leasing Principles During COVID-19’. The purpose of the code was to create a set of good faith leasing principles for commercial tenancies (including retail, office and industrial tenancies). The code was adopted by the NSW Government in the Retail and Other Commercial Leases (COVID-19) Regulation 2020 with an expiry of 31 December 2020.
By the New South Wales regulation, landlords and tenants were obligated to negotiate in good faith the operation of the lease during the pandemic period and in doing so, take into account the leasing principles under the code. The regulations also provided that while negotiations are underway, landlords were restrained from terminating leases.
On 1 January 2021 the Retail and Other Commercial Leases (COVID-19) Regulation (No 3) 2020 commenced.
When the regulations expire in New South Wales on 28 March 2021, retail tenants will no longer be protected. In negotiating amendments, it is expected tenants and landlords had come to an agreement on the operation of the lease during the pandemic period.
Landlords will no longer be required to negotiate rent relief and the restraint to terminate leases for unpaid rent will resume. This is an important consideration for your cashflow and operating costs for the second half of the financial year.
The tenant may have rights to resist lease termination if:
- The tenant calls for negotiation and formally mediates before the Small Business Commissioner with no agreement reached because the landlord did not act in good faith in negotiations.
- The regulations expire with the tenant not having paid the full rent during the pandemic period.
- The landlord seeks to recover unpaid rent and/or terminate the lease.
Legal advice must be sought including advice on whether the landlord acted in good faith.