Given the continuing state-wide lockdown, the NSW Government have enacted new Regulations to ensure that the economic impact of COVID-19 is shared by landlords and tenants.
The increased tenant protections provided by the re-instatement of the National Cabinet’s Commercial Leasing Code of Conduct combined with land tax concessions and the $40M Commercial Landlord Hardship Fund are the tools they are using to try and achieve this.
Landlords and tenants are required, and encouraged, to negotiate a reasonable outcome, taking into consideration the circumstances and hardships for tenants and landlords alike. If a resolution can’t be reached, the case can be referred to the relevant bodies for mediation.
I’m a residential tenant – how does this help me?
A tenancy moratorium to restrict when landlords can evict tenants due to rental arrears is in place until 11 September 2021.
The protection against eviction for rental arrears applies to all tenancy agreements, including informal, unwritten agreements.
You are eligible for the restrictions on evictions if your household income has been reduced by 25% or more because you, or a rent paying member of your household:
- either lost or had a reduction in income or employment due to coronavirus, or
- had to stop working or reduce work hours due to coronavirus illness or carer responsibilities, and
- you continue to pay at least 25% of the rent payable unless you and the landlord have agreed to a lesser percentage.
Residential property owners – What does this mean for you?
Landlords with residential tenants in financial distress, as detailed above, may be eligible for a land tax concession or a grant if they provide rent reductions to those tenants.
How much? Either but not both:
- a grant of up to $3,000 to residential landlords for rent reductions provided to tenants. The amount for each landlord will be capped at the total rent reduction that is passed onto the tenants, or $3,000, whichever is the lower, or
- a reduction in the amount of 2021 land tax attributable to the land leased by that tenant. The land tax reduction is the lesser of the amount of rent reduction provided to the eligible tenant or 100% of the 2021 land tax payable.
During the moratorium period where evictions for rental arrears are restricted, a landlord may continue to seek a termination in certain circumstances including the end of the fixed-term agreement or sale of premises, or damage to property.
Commercial Landlords and Tenants – Is there any assistance available?
For a six-month period (13 July 2021 to 13 January 2022), commercial landlords cannot take certain actions against an eligible tenant (e.g. eviction) unless they have first re-negotiated rent and attempted mediation.
The new rules apply from 13 August 2021. Tenants in financial distress and their landlords should start the process of negotiating rent relief agreements as soon as possible.
An “eligible tenant” in a retail or commercial tenancy is someone who:
- has an annual turnover of up to $50 million; AND
- are eligible for the Micro-business COVID-19 Support Grant, the COVID-19 NSW Business Grant and/or the Job Saver Grant.
Commercial landlords and eligible tenants must negotiate rent relief agreements by taking into consideration principles in the National Cabinet’s Code of Conduct on commercial tenancies (unless otherwise agreed by both parties):
- Landlords must not terminate leases for non-payment of rent.
- Tenants must remain committed to the terms of their lease, subject to any amendments negotiated, and material failure to do so will forfeit additional COVID-19 protections provided to tenants
- Landlords must offer tenants proportionate reductions in rent (in the form of deferrals and waivers) of up to 100 per cent of the amount ordinarily payable, in proportion to the decline in the tenant’s trade.
- Rent waivers, as opposed to deferrals, must constitute at least 50 per cent of the rent reduction provided by landlords (in negotiating this, regard must be had to the landlord’s financial ability to provide such a waiver)
- Any rent deferral must be amortised over the balance of the lease term and for a period no less than 24 months, whichever is greater, unless otherwise agreed by the parties
- Landlords must pass any reduction in statutory charges (e.g. land tax, council rates) to the tenant
- Landlords should seek to share any benefit received due to deferral of loan payments by a bank or otherwise with the tenant in a proportionate manner
- Landlords should, where appropriate, seek to waive recovery of any other expense (or outgoing payable) by a tenant under the lease terms during the period the tenant is unable to trade.
- Repayment of other (non-rent) expenses should not commence until the earlier of the COVID-19 pandemic ending (as defined by the Australian Government), or the existing lease expiring.
- Landlords must not charge fees or interest on rent or fees that are waived or deferred.
- Landlords must not draw on a tenant’s security for the non-payment of rent (be this a cash bond, bank guarantee or personal security) unless agreed by the tenant and landlord.
- Tenants should be allowed to extend their lease for an equivalent period of any rent waiver/deferral period.
- Landlords must freeze rent increases (except for retail leases based on turnover)
- Landlords may not apply any prohibition or levy any penalties on tenants that reduce operating hours or cease to trade during the COVID-19 pandemic.
The Regulation does not prescribe a specific period that parties should use to calculate decline in turnover. As such, parties are free to determine an appropriate period that works for them.
Tenants should provide evidence of their decline in turnover to their landlord to help them calculate the appropriate rent reduction. Any payments received for COVID-19 Grants should be included as part of a tenant’s turnover for these purposes. Evidence could include a Business Activity Statement (BAS) and/or an Accountant’s Letter.
If a tenant’s circumstances change, they can make a subsequent request to negotiate further rental assistance.c
For commercial landlords, if you have provided any of the rental relief measures for your eligible tenants as detailed above then the following concessions may be available:
- a reduction in the amount of 2021 land tax attributable to the land leased by that tenant. The land tax reduction is the lesser of the amount of rent reduction provided to the eligible tenant or 100% of the 2021 land tax payable. or
- a monthly grant of up to $3,000 for small commercial landlords from the Commercial Landlord Hardship Fund who provide rental waivers of at least the value of the grant.
The main guidelines for the Commercial Landlord Hardship Fund are:
- the Commercial Landlord Hardship Fund will open for applications in October 2021
- the grant will be available till the Fund is closed by the government or until all funds from the Fund have been exhausted whichever is sooner.
- the landlord must attest monthly that the rental reduction agreement remains in force and the other requirements have been met, in particular the ongoing financial hardship of both the tenant and landlord
- the tenant must agree to disclose the terms of the rent reduction agreement for the landlord to apply for the grant
- a deferral or delayed rent payment is not rent relief for the purposes of this grant. A rent waiver or non-payment of rent must be agreed upon.
- be a landowner or trustee with total taxable land holdings of less than $5 million (as of 31 December 2020, under the Land Tax Management Act 1956), including part holdings but excluding the value of a principal place of residence
- have gross rental income as their primary source of income (gross rental income being more than 50% of total assessable income) for the 2019-20 financial year. A copy of the landlord’s 2020 Income Tax Return will need to be included with the application.
- be a landlord with a current lease agreement that provides rent relief to the tenant. A copy of the lease will need to be included with the application.
- applicants must apply online via the Service NSW website. All questions in the application form must be answered to enable timely assessment and grant payment.
As always, the team at Bentleys are here to provide any assistance you may require to negotiate these relief measures.