Clarification of NSW landlord and tenant obligations under the Retail and Other Commercial Leases COVID-19 Regulation

28 July 2021

Publications

A recent decision in the New South Wales Supreme Court, has clarified obligations of landlords and tenants under the Retail and Other Commercial Leases (COVID-19) Regulation 2020 (NSW) and the National Cabinet Mandatory Code of Conduct – SME Commercial Leasing Principles During COVID-19.

The case of Darzi Group Pty Ltd v Nolde Pty Ltd [2021] NSWSC 774 concerned a tenant’s request to renegotiate their rent during the height of the coronavirus pandemic in 2020. In conjunction with the request, the tenant unilaterally decreased their rent payments proportionate to their reduced income.

His Honour Robb J found that the landlord’s failure to renegotiate rent in good faith under cl 7 of the COVID-19 Regulation barred the landlord from recovering the remaining rent owed from the tenant, not only during the prescribed period but forever.

His Honour further found that a tenant’s failure to pay the full rent payable is not a type of breach that falls under Principle No 2 of the Code, a principle that provides that lessees forfeit their protection under the Code if they fail to comply with their lease terms. The tenant’s unilateral reduction of their rent payable therefore could not justify the landlord’s failure to renegotiate or enable the landlord to recover the rent owed.

The timing of the judgment could not be more apt, with the New South Wales government recently passing the Retail and Other Commercial Leases (COVID-19) Regulation 2021 to provide much needed relief to retail and commercial tenants during NSW’s second major lockdown although there is not in that regulation the requirement to renegotiate rent.

Darzi also confirmed that to be an “impacted lessee” under the then COVID-19 Regulation, the tenant need only show that they qualified for the JobKeeper Scheme and had a turnover of less than $50 million.

The 2021 Regulation defines “impacted lessee” as specified businesses with a turnover of less than $50 million in the 2020-2021 financial year who qualify for the NSW Government’s Micro-business COVID-19 Support Grant, COVID-19 NSW Business Grant, or Job Saver Grant.

Key takeaways

The judgment highlights the Court’s willingness to favour interpretations that uphold the spirit of COVID-19 pandemic related instruments.

Parties to retail and commercial leases must conduct themselves in good faith to attract the protections offered under such initiatives.

Should you require any further information please do not hesitate to contact us or a member of our National Property Team.

Authors

Sonya Parsons | Partner | +61 2 8248 3409 | sparsons@tglaw.com.au

Alyssa Sealtiel | Law Graduate