COVID-19: NSW Government announces implementation of commercial tenancy code

  • On 13 April 2020 the NSW Government announced implementation of the commercial tenancy code.
  • This follows the Mandatory Code of Conduct released the National Cabinet on 7 April 2020.
  • The NSW Government will seek to give legal effect to the code as soon as possible.
  • This forms part of a $440 million land tax relief package to be split between the residential and commercial sector.
  • The NSW Small Business Commission to deliver increased mediation and advisory services to affected parties.

NSW Treasurer, Dominic Perrottet, announced on 13 April 2020 that the NSW Government will implement the Code of Conduct released by National Cabinet on 7 April 2020 for SME commercial tenancies during the COVID-19 period.

The Code sets out good faith leasing principles to guide discussions between commercial landlords and tenants who are significantly affected by COVID-19 crisis.

The policy will apply to SME tenants who are:

  • Eligible for the Commonwealth’s JobKeeper program, and
  • Have a turnover of less than $50M, and
  • Experience a 30 per cent (or more) reduction in revenue as a result of the COVID-19 pandemic.

The measures will apply to commercial leases including but not limited to shops, cafes, gyms, hairdressers, restaurants, offices, warehouses and industrial sites.

Landlords are free to make alternative arrangements with tenants not covered by the Code based on agreement between the parties.

The Code of Conduct will operate for a temporary period during the pandemic, and include the following key measures:

  • Landlords must negotiate rent relief agreements with tenants in financial distress by applying the principles set out in the Code, and
  • A ban on the termination of a lease for non-payment of rent, and
  • A freeze on rental increases.

The proportionality principle outlined in the National Code is to apply– where landlords will need to offer tenants rent relief proportionate to the tenant’s decline in turnover. The Code also included a statement that a rent waiver should make up at least 50% of any rent relief. The details of how this will be implemented in NSW are yet to be finalised.

Under the Code, landlords must not terminate the lease for non-payment of rent or draw on a tenant’s security. Similarly, tenants must honour their lease.

Land tax relief

The land tax relief is expected to be divided approximately 50/50 with around $220M going to the commercial sector and a further $220M to the residential sector.

Commercial landlords will be offered the land tax concession if they pass the savings onto tenants through a rent reduction.

Eligible landlords will be able to apply for a land tax concession of up to 25 per cent of their 2020 (calendar year) land tax liability on relevant properties. A further land tax deferral for any outstanding amounts for a three-month period will also be offered to landlords who claim the land tax concession.

Small Business Commissioner to supply dispute resolution

The Office of the Small Business Commissioner (OSBC) will receive a $10 million boost and extra staff to provide a dispute resolution service. Currently, the OSBC has jurisdiction in relation to retail leases and provides services in relation to some commercial lease disputes, at the smaller end of the market.

This article has been prepared with the kind assistance of the Property Council of Australia. Read the full article released by the NSW Government here.

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