Update on commercial leasing in South Australia

Overview

The COVID-19 Emergency Response (Further Measures) Amendment Act 2020 (Further Measures Act) and COVID-19 Emergency Response (Commercial Leases No 2) Regulations 2020 (New Regulations) amend the COVID-19 Emergency Response Act 2020 (Act) to provide additional prohibitions, restrictions, obligations and dispute resolution mechanisms in respect of commercial leases in South Australia whilst replacing the former regulations under the Act.

This note provides a summary of the key provisions of the Further Measures Act and New Regulations.

 

The Further Measures Act

Section 4 of the Further Measures Act replaces section 7 of the Act and grants the Governor the power to make such regulations as are necessary or expedient for the purposes of mitigating the adverse impacts of the COVID-19 pandemic on parties to Commercial Leases. The Further Measures Act contains a non-exhaustive list of matters the New Regulations may provide for.

 

The New Regulations

The New Regulations contain most of the provisions applying to commercial leasing that are set out in the Act and former regulations, in addition to some new and altered provisions and broader rights for seeking dispute resolution.

The object of the New Regulations, having regard to the Mandatory Commercial Tenancies Code of Conduct (Code) introduced by the Prime Minister in early April, is to:

• implement temporary measures to apply to parties to certain commercial leases related to circumstances brought about by the COVID-19 pandemic; and
• provide for mechanisms to resolve disputes concerning those leases.

 

Temporary Measures

Obligation to Negotiate in Good Faith

The New Regulations require parties to a commercial lease to make a genuine effort to negotiate in good faith the rent payable under, or the terms of the commercial lease during the prescribed period. ‘Prescribed period’ is defined to mean the period commencing on 30 March 2020 and ending on 30 September 2020. This requirement is consistent with the Code which imposes a set of good faith leasing principles in respect of certain commercial tenancies.

Prohibitions and Restrictions Relating to Commercial Leases

The prohibitions and restrictions in regulation 7 of the New Regulations are largely the same as those in the Act subject to some variations.

The New Regulations require a lessor who receives a waiver of land tax or a relief payment under a scheme administered by the Treasurer for the purposes of providing land tax relief to persons suffering financial hardship as a result of the COVID-19 pandemic, to pass on the benefit in the form of a waiver of rent payable by an affected lessee under the commercial lease in accordance with the provisions of that scheme.

Regulation 7(1) of the New Regulations prevent a lessor from taking any ‘prescribed action’ (which includes eviction, re-entry, termination of the lease, seeking damages, requiring the payment of interest on unpaid rent and seeking recovery of security) against the lessee on grounds of breach of the lease during the prescribed period consisting of:

• a failure to pay rent;
• a failure to pay outgoings; or
• the business operating under the lease not being open for business during the hours specified in the lease.

However, regulation 7(1) does not apply to a failure to pay rent if the amount of rent payable under the lease during the prescribed period is agreed by the parties under a mediation by the Small Business Commissioner (Commissioner) pursuant to regulation 8 of the New Regulations or a determination by the Magistrates Court (Court) pursuant to regulation 9, and the failure to pay rent constitutes a breach of the agreement or Court order.

The New Regulations use the term ‘affected lessee’ instead of the term ‘lessee who is suffering financial hardship’ which is used in the Act.  A lessee is an ‘affected lessee’ for the purpose of the New Regulations if:

• the lessee is suffering financial hardship as a result of the COVID-19 pandemic; and
• the following turnover in a relevant year was less than $50 million;
  • if the lessee is a franchisee—the turnover of the business conducted at the premises the subject of the commercial lease;
  • if the lessee is a corporation that is a member of a group—the turnover of the group; and
  • in any other case—the turnover of the business conducted by the lessee at the premises the subject of the commercial lease.

As was the case in the former regulations, a lessee will be taken to be suffering financial hardship as a result of the COVID-19 pandemic if the lessee is eligible for, or receiving, a JobKeeper payment in respect of the business of the lessee.

 

Dispute Resolution

The New Regulations provide a detailed processes for resolution of disputes by the Commissioner and Court.

Mediation by Commissioner (Regulation 8)

A party (claiming to be an affected lessee) to a commercial lease may apply to the Commissioner for mediation of a ‘relevant dispute’.

‘Relevant dispute’ is defined to mean:

• a dispute in relation to whether or not, for the purposes of the Act and the New Regulations, a lessee is suffering financial hardship as a result of the COVID-19 pandemic; or
• a dispute in relation to the provision of rent relief during the prescribed period (including a failure of a party to a lease to take part in a negotiation in respect of the provision of rent relief); or
• a dispute in relation to issues that have occurred in relation to the COVID-19 pandemic arising from, or related to, the operation of the New Regulations the commercial lease or any other matter relevant to the occupation of the premises or to a business conducted at the premises the subject of the commercial lease.

Determination by Court (Regulation 9)

A party to a commercial lease may apply to the Court for resolution of a relevant dispute in relation to the commercial lease but only where the Commissioner has issued a certificate in the form of a determination in accordance with regulation 8(4). The Court may make a determination as to whether or not the lessee is an affected lessee and in doing so may have regard to whether or not the lessee is eligible for, or is receiving a JobKeeper payment and any reduction in turnover of the business of the lessee. In accordance with regulation 9(5), the Court may among others orders, make any one or more of the following orders:

• an order granting rent relief to an affected lessee in relation to payment of rent under the commercial lease;
• an order requiring the payment of some or all of the rent under a commercial lease into the Court until the lease has been performed;
• an order modifying the terms and conditions of a lease in a manner specified in the order; and
• an order to defer the payment of rent under an affected lease for a specified period not exceeding 24 months from the day on which the order is made.

It is important that landlords and tenants are prepared to adapt quickly to new regulations as and when they are made by the Governor. If you are a landlord or tenant requiring further information about the operation of the Further Measures Act or New Regulations, or wish to obtain more specific advice in relation to the operation of your commercial lease, please contact Paul Turner on 08 8239 7123 or Andrew Wilton on 08 8239 7113.

Important Disclaimer: The material contained in this article is comment of a general nature only and is not and nor is it intended to be advice on any specific professional matter. In that the effectiveness or accuracy of any professional advice depends upon the particular circumstances of each case, neither the firm nor any individual author accepts any responsibility whatsoever for any acts or omissions resulting from reliance upon the content of any articles. Before acting on the basis of any material contained in this publication, we recommend that you consult your professional adviser. Liability limited by a scheme approved under Professional Standards Legislation (Australia-wide except in Tasmania).