COVID-19 and Leases – The Next Chapter in Rental Relief
As the year draws to a close, the phrase “the more things change the more they stay the same” is in a lot of ways an appropriate comment to make, especially when I see what is going on in when it comes to the issue of claims for rental relief due to COVID-19. The passing of the Retail and Other Commercial Leases (COVID-19) Regulation (No 2) 2020 (“the New Regulation”). It’s a case of more of the same.
Continuity from Earlier Regulations
The New Regulation inherits the same framework as existed in the earlier set of rental relief regulations that commenced on 24 April 2020 and automatically repealed on 23 October 2020, namely:
- There is the same threshold test as to whether a tenant is an impacted lessee, in order for the regulations to apply;
- An impacted lessee cannot be subject to actions such as eviction, damages, enforcement of guarantees, etc due to failure to pay rent or outgoings or not opening for business during the hours specified in the lease;
- No rental increases for impacted lessees;
- Parties are to renegotiate the rent payable in accordance with the National Code of Conduct – this means rental relief on the basis of the fall in turnover of the impacted lessee, in the form of a minimum of 50% waiver and 50% deferral of rent; and,
- Compulsory mediation if the parties cannot resolve their issues.
What is new?
The New Regulations have added the following to the existing framework:
- The prescribed period is now extended until 31 December 2020 – which means parties are entitled to relief during this extended time; and,
- An impacted lessee is entitled to make a second or subsequent request for rental relief during the prescribed period, as long as it does not relate to rent for a period for which rent has already been reduced, waived or deferred.
What does all this mean?
The New Regulation will provide welcome relief for impacted lessees who have continued to struggle because of the adverse economic impacts of COVID-19. It will also enable parties who are still negotiating rental relief to protect their tenancies. However in my opinion, the New Regulation ensures that the shortfalls associated with the framework for rental relief continue – namely there is still no:
- Certainty around what information a tenant is to provide – I have been involved in many disputes where parties cannot even resolve what information to provide in order to work out what rental relief to agree on;
- Hard rule as to how much rental waiver a tenant is entitled to (beyond a minimum of 50% of the rental relief given);
- Clarity around how long a tenant is entitled to rental relief or when they are required to commence repayment of deferrals;
- No relief from payment of outgoings, apart from the landlord being required to pass on any relief from land tax, council rates or other statutory charges and insurance;
- Certainty around where a monthly tenancy sits?
Therefore the New Regulation maintains a system that has worked really well for reasonable parties who are prepared to work together to resolve their issues, but where either party to a lease is unreasonable the system does not assist them in coming to a speedy resolution.
If you need someone to step you through this frame work, please do not hesitate to reach out to a member of Coleman Greig’s Commercial Property Team, who would be more than happy to assist you today.