What happens if a tenant is unable to pay rent because of the COVID-19 pandemic?
Federal Government Response:
The federal government’s response to the COVID-19 pandemic has seen laws governing retail, commercial and residential tenancy and rental agreements eroding and evolving at a rapid rate.
National Cabinet Media Statement:
On 29 March 2020, the national cabinet issued a ‘Statement of Principles’ (“Statement”) relating to commercial and residential tenancies. The Statement included principles such as:
- A short term, temporary moratorium on eviction for non-payment of rent to be applied across commercial tenancies impacted by severe rental distress due to coronavirus;
- Tenants and landlords are encouraged to agree on rent relief or temporary amendments to the lease;
- The reduction or waiver of rental payment for a defined period for impacted tenants; and
- Landlords and tenants not significantly affected by coronavirus are expected to honour their lease and rental agreements.
National Cabinet Mandatory Code of Conduct
On 7 April 2020, the national cabinet released a mandatory Code of Conduct (“the Code”), setting out 11 leasing principles for state governments to consider and regulate. The federal government cannot impose the Code on states, and it is therefore up to the state governments to implement measures and regulate the Code.
The purpose of the Code is to provide certainty and guidelines to parties in commercial tenancy arrangements during the COVID-19 pandemic.
Some principles to assist the relationship between the landlord and tenant include:
- Requirement to negotiate in good faith.
- To work together to ensure business continuity.
- Act in an open, honest, and transparent manner.
- To provide sufficient and accurate information within the context of negotiations and to achieve outcomes consistent with the Code.
What is the interplay between the Government and state response?
The COVID-19 pandemic has caused significant interplay between federal and state powers to control and manage the COVID-19 pandemic. The states are required to implement and regulate laws that relevantly address the federal government’s response in relation to the pandemic. Particularly in relation to tenancy laws as this is an area and matter for each state to regulate.
On 25 March 2020, the COVID-19 Legislation Amendment (Emergency Measures) Act 2020 (NSW) (“the COVID-19 Act”) was assented to and commenced. The purpose of the COVID-19 Act is to amend state legislation and provide for specific regulations to be made in response to the federal government’s response to the COVID-19 pandemic. The COVID-19 Act amends the following by allowing regulations to be made in relation to retail, commercial and residential tenancies:
- Retail Leases Act 1994 (NSW);
- Residential Tenancies Act 2010 (NSW); and
- Conveyancing Act 1919 (NSW) by amending the Conveyancing (General) Regulation 2018 (NSW).
In this respect, the state of New South Wales has responded to the measures introduced by the federal government by implementing regulations at state level in relation to retail, commercial and residential leases as follows:
- The Retail and Other Commercial Leases (COVID-19) Regulation 2020 (NSW) (“ROCL Regulation”);
- The Residential Tenancies Amendment (COVID-19) Regulation 2020 (NSW) (“RTA Regulation”); and
- Adding Schedule 5 to the Conveyancing (General) Regulation 2018 (NSW) (“Conveyancing Regulation”).
These regulations are discussed further below.
Retail and Other Commercial Leases (COVID-19) Regulation 2020 (NSW):
The ROCL Regulation endorses the Code. The ROCL Regulation is made under the Retail Leases Act 1994 (NSW) and the Conveyancing Act 1919 (NSW). The amendments to the Conveyancing Act 1919 (NSW) amend the Conveyancing (General) Regulation 2018 (NSW).
The ROCL Regulation is to be in effect for 6 months from 24 April 2020 and provides that it is repealed on 25 October 2020.
What does the ROCL Regulation mean for businesses?
- In circumstances where a business is eligible under the ROCL Regulation, eligible business tenants will be entitled to request rent reduction in the form of waivers and deferrals from their landlords.
- Eligible businesses with tenancy agreements under the ROCL Regulation will have greater protection, as landlords must not terminate leases due to non-payment of rent during the COVID-19 pandemic.
Which leases does the ROCL Regulation affect?
The ROCL Regulation applies to commercial leases which includes:
- Retail leases under the Retail Leases Act 1994 (NSW); and
- Any agreement relating to the leasing of premises or land for commercial purposes under the Conveyancing Act 1919 (NSW) through amendments under the Conveyancing Regulation.
Who does the ROCL Regulation apply to?
The ROCL Regulation and the Code applies to all businesses in a retail or commercial arrangement that:
- Qualify for the Commonwealth Government JobKeeper scheme; and
- The businesses annual turn over was less than $50 million in the 2018-2019 financial year.
Residential Tenancies Amendment (COVID-19) Regulation 2020 NSW)
The RTA Regulation commenced on 15 April 2020 and will apply for 6 months, until 15 October 2020. The introduction of the RTA Regulation is intended to provide residential tenants with protection during the COVID-19 pandemic.
Who is covered by the RTA Regulation?
The RTA Regulation applies to tenants who have been financially impacted by the COVID-19 pandemic. A tenant is an impacted tenant under the RTA Regulation if they are a member of a household where any one or more rent-paying members of the household have:
- Lost their employment or income as a result of the impact of the COVID-19 pandemic, or
- Had a reduction in work hours or income as a result of the impact of the COVID-19 pandemic, or
- Had to stop working, or materially reduce the member’s work hours, because of:
- the member’s illness with COVID-19, or
- another member of the household’s illness with COVID-19, or
- the member’s carer responsibilities for a family member ill with COVID-10, and
- As a result of any of the matters above the weekly household income for the household has been reduced by at least 25% compared to the weekly household income for the household before the occurrence of any of the matters.
If eligible, what are some of the changes?
- If you are an eligible tenant under the RTA Regulation, the landlord is prohibited, for a period of 6 months from the commencement of the RTA Regulation, from:
- giving a tenant who is a member of a household financially impacted by the COVID-19 pandemic a termination notice under the Residential Tenancies Act 2010 (NSW) for non-payment of rent or charges, or
- applying to the NSW Civil and Administrative Tribunal under the Residential Tenancies Act 2010 (NSW) for a termination order for non-payment of rent or charges by an impacted tenant.
- However, there are circumstances where a landlord may evict an impacted tenant for non-payment of rent or charges if:
- the landlord gives a termination notice, or applies for a termination order, at least 60 days after the commencement of the RTA Regulation, and
- the landlord and impacted tenant have participated, in good faith, in a formal rent negotiation process about the rent or charges payable, and
- it is fair and reasonable in the circumstances of the case for the landlord to give the termination notice or apply for the order, and
- the landlord gives at least 90 days’ notice of the termination.
- Landlords are prohibited from listing an impacted tenant on a residential tenancy database for the non-payment of rent or charges.
What should you do?
Retail, commercial and residential tenants who are having trouble paying their rent as a result of the COVID-19 pandemic, should continue to pay their rent until they:
- Have negotiated and reached documented agreement with the landlord; or
- Receive advice indicating that they are eligible for rent relief as part of the federal and state government’s response to the COVID-19 pandemic.
If tenants are not eligible and stop paying rent, tenants should be careful of the risks that may arise, as this will likely amount to a breach of their tenancy agreement.
Legal advice should be sought if negotiations are futile and tenants believe they are eligible for the rental relief during the COVID-19 pandemic.