Assisted by Francesca Zappia 

The repercussions of the COVID-19 pandemic have been detrimental to both lessors and lessees throughout the retail and commercial leasing sectors. In March 2020, the COVID-19 Legislation Amendment (Emergency Measures) Act 2020 (NSW) was enforced. Schedule 2 of the Act was introduced to include additional clauses into current legislation to make it ‘COVID-friendly’, as seen through the amended clauses in the Retail Lease Act 1994 (NSW).

The Legislation in Action

On 31 July 2020, the Supreme Court of New South Wales published the decision of Sneakerboy Retail Pty Ltd trading as Sneakerboy v Georges Properties Pty Ltd [2020] NSWSC 996. The application of the newly formed COVID-19 Amendment legislation was used in this case whereby the tenant, Sneakerboy applied for relief against forfeiture after the termination of the lease was made by the landlord, Georges Properties Pty Ltd on the 15 March 2020.

Key Facts

• The tenant, Sneakerboy, had a previous history of failing to pay overdue rent payments owed to the landlord, Georges Property Pty Ltd beginning from 15 March 2016.
• By 17 March 2020, the tenant was in rent arrears of up to $65,463.03 for the months of January and February 2020.
• On 23 March 2020 the director of Sneakerboy decided to cease trade as a result of the 4m square rule which allowed only 7 customers into the store at one time, as well as the result of an 85% decrease in trade from the previous year.
• Around 25 March 2020, the peak of the COVID-19 pandemic, the tenant began to remove stock from the premises and requested to pay their arrears in instalments due to the impact on sales due to the pandemic.
• The tenant failed to make the payments as per their requested instalment program.
• The landlord found that the removal of stock held to be an abandonment of the premises and on the 25 March 2020, the landlord issued a notice of termination and re-enter due to the tenant’s alleged abandonment of the premises.
• In July 2020, the tenant brought the notice to court in an application for relief against forfeiture.

COVID-19 Legislation Amendment (Emergency Measures) Act 2020 (NSW) and other considerations came into place including:

• The fact that the landlord terminated the lease based on the assumption of abandonment during the pandemic on 25 March 2020, demonstrating the failure to act within the newly formed Retail Lease Act 1994 (NSW) as a result of the COVID-19 Legislation Amendment (Emergency Measures) Act 2020 (NSW).

• Retail Lease Act 1994 (NSW) s87(1)(b), whereby the landlord is prohibited from “the termination of a lease or tenancy by a lessor or owner of premises or land under the relevant Act in particular circumstances”
• The Act is very much in favour of the tenant, demonstrating that during the public health emergency, there shall be no termination or repossession made by the lessor/landlord.
• The National Cabinet Mandatory Code of Conduct: SME Commercial Leasing Principles during COVID-19 was adopted on 7 April 2020
• This Code, whilst not having a binding effect on the proceedings of this case, held that there must be “a set of good faith leasing principles for application to commercial tenancies”
• The Code also held that “Landlords must not terminate leases due to non-payment of rent during the COVID-19 pandemic period (or reasonable subsequent recovery period)”.

Outcome

• The Court found that the tenant’s actions of removing items from the premises, given the current COVID-19 situation, was not an indication of abandonment of premises.
• Given this, the Court held that the only grounds for termination was the fact that the tenant was in rental arrears.
• The Court called on the bank guarantee to be paid to the landlord, which was 10 months of rent + GST, amounting to $253,668.90. This was despite the fact that the amount owing to the landlord was less than the amount of the bank guarantee.
• The Court noted that the tenant would be granted relief against forfeiture on the grounds that they pay the cost of the landlord’s legal proceedings and produce a new bank guarantee.

Key Takeaways

• As a landlord, it is important not to assume that a tenant has abandoned the premises.
• Rental arrears may not be adequate as a basis for the termination of a lease.
• It is important to consider new, evolving legislation in the time of a global pandemic.

If you would like to understand the new COVID-19 legislation and whether it applies to you, please don’t hesitate to contact a member of Coleman Greig’s Commercial Property team, who would be more than happy to assist you today.