Update on NSW COVID-19 Regulations for commercial and retail leases

In brief - The NSW Government has amended its most recent set of COVID-19 regulations for commercial and retail leases. The regulations continue to apply to leases entered into before 26 June 2021, but the prescribed period for which the regulations apply now runs from 13 July 2021 to 13 January 2022. Additional protections for tenants are also in place.

Under the new Retail and Other Commercial Leases (COVID-19) Amendment Regulation 2021 (NSW) (2021 Amendment Regulation), the NSW Government has extended its re-introduced protections for tenants in response to the COVID-19 pandemic. (You can read our article published on 23 July 2021 about the re-introduced protections here: NSW Emergency COVID-19 Regulations regarding leases are back, with a few important differences)

Key updates under the Retail and Other Commercial Leases (COVID-19) Amendment Regulation 2021 (NSW) 

The 2021 Amendment Regulation provides for the following key changes:

1. Extends the prescribed period for which the regulations apply, which now runs from 13 July 2021 to 13 January 2022. This period was originally due to expire on 20 August 2021.

2. Prohibits rent increases (except for turnover rent) for impacted lessees during the prescribed period.

3. Requires lessors and impacted lessees to renegotiate rent and other terms when requested by one party. This renegotiation must commence within 14 days of the request unless otherwise agreed by the parties.

4. Requires good faith renegotiations that take into consideration the leasing principles set out in the National Cabinet Mandatory Code of Conduct—SME Commercial Leasing Principles During COVID-19 (SME Commercial Leasing Principles).

4 key principles to consider in good faith renegotiations

To recap, the key principles that must be considered under the SME Commercial Leasing Principles when renegotiating a lease include:

1. Landlords must offer tenants a rent reduction that is proportionate to the reduction in the tenant's trade during the COVID-19 pandemic period and a subsequent reasonable recovery period. 

2. Rental waivers must constitute no less than 50% of the total reduction in rent payable over the COVID-19 pandemic period. 

3. Rental deferrals must be repaid by tenants over the balance of the lease term and for a period of no less than 24 months, whichever is the greater, unless otherwise agreed by the parties. 

4. If the arrangements negotiated by the parties require the making of repayments, then repayments should occur over an extended period in order to avoid placing an undue financial burden on the tenant.