An update for landlords on COVID-19
On 29 March 2020, Prime Minister Scott Morrison released a National Cabinet Statement containing new short-term ‘hibernation’ measures to support commercial tenancies during the COVID-19 pandemic. Last week we wrote about various options available to landlords in the event that tenants fall into default on their rent as a result of COVID-19 and associated government mandated social distancing measures. Once implemented, these ‘hibernation’ measures will significantly reduce the options available to landlords.
As commercial and retail tenancies are regulated at the State and Territory level, each State and Territory will need to implement its own legislation to give effect to these ‘hibernation’ measures. However, the National Cabinet announced a ‘common set of principles’ that will guide the implementation of the new measures. They are as follows:
Landlords will have to wait for more detailed guidance on exactly how these measures will be implemented by State and Territory governments. For example, it is currently unclear:
However, what is clear is that the new measures will limit the landlord’s rights in dealing with tenants who have been impacted by COVID-19.
The New South Wales (NSW) Parliament passed legislation last week in relation to commercial and retail leases. The COVID-19 Legislation Amendment (Emergency Measures) Act 2020 (NSW) (the Act) authorises new regulations to be made under the Agricultural Tenancies Act 1990 (NSW), the Retail Leases Act 1994 (NSW) and any other Act relating to the leasing of premises or land for commercial purposes.
In certain circumstances1, regulations can be made under those Acts:
However, the Act does not provide guidance on what ‘particular circumstances’ must occur before the regulations apply.
At this stage, the NSW Government has not issued any regulations under the powers granted by the Act.
Yesterday, the Australian Banking Association announced that Australian banks will allow businesses with total business loan facilities of up to $10 million the ability to defer their repayments for their business loans for six months. This is an increase from the previous $3 million threshold for small businesses. Businesses wishing to access this must opt-in and agree to certain conditions.
Relevantly, for commercial property landlords, they must provide an undertaking to the bank that for the period of the interest capitalisation, they will not terminate leases or evict current tenants for rent arrears as a result of COVID-192 .
While awaiting the State and Territory Governments to implement the new measures, the Prime Minister has emphasised the need for open communication and cooperation between landlords, their tenants and banks, to help mitigate the long-term impacts of COVID-19.
In the meantime, landlords should pay attention to any further clarification from the State and Territory Governments. It is expected that further updates will be provided throughout this week, so stay tuned for the next update.
1 Such regulations may only be made if the NSW Parliament is not likely to sit within two weeks after the day the regulations are made, and the Minister believes the regulations are reasonable to protect the health, safety and welfare of lessees or tenants under the Act. These regulations expire after six months, or earlier if decided by the NSW Parliament.
2 In addition, the conditions also include requirements that interest is capitalised (meaning either the term of the loan is extended or payments are increased after the deferral period), the customer has advised that its business is affected by COVID-19 and the customer was current in terms of existing facilities 90 days prior to applying.