COVID Support for Commercial Leaseholders Is Back. Here’s What You Need to Know

September 10, 2021

COVID Support for Commercial Leaseholders Is Back. Here’s What You Need to Know

By URY ZHANG

2021 is a severe case of déjà vu for many business owners, forced to shut their doors again thanks to 2020-style lockdowns. While we’re all dealing with a lot of the challenges from last year, an area that hasn’t felt quite the same is government support.

Business grants, rent relief, and financial assistance packages dominated the headlines when they began rolling out last year in April. News on the support available for business owners has been much quieter with the recent lockdown, particularly in relation to commercial rent.

Commercial rent relief is the most significant legislation to help small and medium-sized business owners. It’s not getting the same fanfare as last year and the re-introduction has been delayed until recently, meaning many business owners don’t know that help is now available.

We’ve already seen multiple thriving businesses pre-COVID go into administration because they haven’t been able to get out of the red. While there are many factors at play, the most significant influence has been the pressure of paying back last year’s rent deferrals on top of this year’s rent, all with the doors closed.

Understanding the legislation in place to protect you can be the difference between reopening your doors at the end of lockdown or having to shutter your business altogether.

What is the NSW Government doing?

The NSW Government enacted the Retail and Other Commercial Leases (COVID-19) Regulation 2021 (the Regulation) on July 13. It implements temporary changes to retail and commercial leasing laws to support the current public health restrictions businesses. It’s in place to maximise the companies that can resume regular operation as soon as the lockdown ends.

The new rules apply from 13 August 2021, and the amended Retail and Other Commercial Leases (COVID-19) Regulation 2021 will be extended until 13 January 2022. The Regulation covers holdover leases but does not cover new leases entered into after 26 June 2021.

What does the legislation mean for small businesses?

Any business with an annual turnover of up to $50 million eligible for other COVID related government grants or financial support can negotiate rent relief agreements with their landlord.

In negotiating these agreements, landlords and tenants must regard the leasing principles in the Code of Conduct and the economic impacts of COVID-19. Under those principles, the rent relief offered by landlords must be proportionate to the tenant’s decline in turnover. This means if a tenant has experienced a 40 per cent decline in turnover due to COVID-19, then the property owner must provide a 40 per cent reduction in rent.

Waivers should make up at least 50% of any rent relief provided, meaning the money does not have to be paid back. Rental deferrals make up the balance, and a reasonable payback schedule should be agreed upon between the landlord and tenant.

Does this mean that commercial tenants are unable to be evicted?

Yes! For an initial six months, commercial and retail landlords cannot evict tenants in financial distress due to COVID-19 unless they have first renegotiated rent and attempted mediation. As with most of the COVID related support available, financial distress is demonstrated when a business experiences a decline in turnover of 30% or more.

How can you show your landlord that you’re eligible?

To show your landlord that you’re eligible for rent relief as per the legislation, you need to provide documents showing that you:

• Had an annual turnover of $50 million or less in 2020-21 (ATO documents, e.g. tax return, or BAS Statements); and

• Are eligible for at least one of the following:

2021 Micro-business Grant
2021 Business Grant, or
2021 Job Saver Payment.

What if your landlord denies your requests?

Unfortunately, there’s no clear-cut guide on how breakdowns in negotiations between business owners and landlords are to be resolved. Courts ruled that the New South Wales Civil and Administrative Tribunal does not have the necessary powers to resolve disputes, which is where professional legal advisers may come into play.

It’s also important to note that commercial landlords can still terminate a lease and evict a tenant for reasons unrelated to COVID-19, provided the landlord complies with the rules. So, it’s still essential to adhere to your tenancy contract as much as possible.

In a nutshell, if you’re struggling to keep up with your rent payments due to the current lockdowns, there is legislation to back you up, and you shouldn’t hesitate in opening negotiations with your landlord.

If you’re unsure how to start the conversation or need help continuing negotiations with a landlord that’s stalling, our team can give you the guidance you need to keep your business on your feet. Reach out if you have any questions.

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