Coronavirus Support: Commercial Lease Relief
Recently, the Prime Minister announced a new strategy which provides commercial lease relief to those affected by COVID-19. Over the next six months, there will be a moratorium on evictions for commercial and residential tenancies in financial distress. Essentially, this means landlords will not be able to evict tenants who are unable to pay their rent because of COVID-19.
This rule was introduced alongside a set of principles agreed to by National Cabinet which may be of assistance to commercial tenants.
Tenants may request a rent-free period during mandatory closure of business or ask for temporary amendments to a lease. These amendments may include tying rent to customer numbers, so that business with only half the number sales as before will only be required to pay half the rent. Landlords and tenants can also agree to ‘turnover’ rent which is based on revenue.
Those wishing to vary current lease arrangements may wish to seek legal advice for the mediation or conciliation process.
Termination of Lease:
Commercial lessees are able to request termination of the lease on the grounds of financial distress. Termination of the lease may also be supported by the doctrine of frustration which is invoked where a supervening event happens after the signing of a contract making it impossible to perform contract obligations.
Commercial property owners should ensure that any benefits received for their properties similarly benefit tenants. This will be proportionate to the financial impact of COVID-19 on the business.
The New South Wales Government has also passed emergency changes to both the Residential Tenancies Act 2010 (NSW) and the Retail Leases Act 1994 (NSW). These changes are expected to be in place for six months and include:
- Prohibiting termination of a tenancy arrangement in particular circumstances
- Prohibiting recovery possession of premises from tenants
- Regulating or preventing the exercise of enforcement of another right relating to the premises
- Exempting a tenant from the operation of provisions or agreements related to the leasing of premises or land for commercial purposes.
It is important to note that there is some uncertainty surrounding these legislative changes, as it awaits further clarification.
What can we take from this?
It is important to note that many of these commercial lease relief principles rely on the discretion of the landlord and that those unaffected by COVID-19 are expected to honour their lease and rental agreements.
Although commercial tenants will not be evicted for failing to pay rent, those experiencing financial hardship should consider contacting their landlord about a variation of their lease.