On 12 May 2020, the SA Government introduced the COVID-19 Emergency Response (Further Measures) Amendment Bill 2020 (Bill) into Parliament. The Bill is yet to pass any of the houses of parliament but we understand that the SA Government is looking to fast track the process. We will provide further updates when the Bill becomes law.
The Bill proposes to insert new amendments to the current provisions that deal with commercial leases under the COVID-19 Emergency Response Act 2020 (Act), which recently commenced to make various temporary modifications to the law of the State in response to the COVID-19 pandemic and for other purposes.
In particular, the Bill proposes to replace the current provisions dealing with commercial leases by inserting amendments to allow a number of changes to be made through regulations to protect tenants from eviction and to provide for resolution of payment of rent issues under commercial leases.
The Bill was accompanied by the COVID-19 Emergency Response (Commercial Leases No. 2) Regulations 2020 (Regulations). The objectives of the Regulations are, having regard to the National Cabinet Mandatory Code of Conduct—SME Commercial Leasing Principles During COVID-19 published on 7 April 2020:
- to implement temporary measures to apply to parties to certain commercial leases related to circumstances brought about by the COVID-19 pandemic; and
- to provide for mechanisms to resolve disputes concerning those leases.
Five things landlord and tenants to commercial leases need to know about the new Bill and Regulations
1. Most operative provisions relating to commercial leases have been removed from the Act and included in the new Regulations. We presume this is to allow the Government greater flexibly to adapt, enhance and roll back at their discretion as States adapt to a potential COVID-19 recovery. For the most part, what applied under the Act continues to apply under the Regulations with some clarifications and enhancements. It remains the case that a landlord cannot terminate for non payment of rent or outgoings where the tenant is an ‘affected lessee’ (as defined in point 5 below).
2. The new Regulations include a new obligation on the landlord and the tenant to negotiate in good faith appropriate relief in their circumstances. There is no prescribed waiver/deferment process. If the parties cannot agree on this and a dispute arises, the landlord or the tenant can apply to the Small Business Commissioner for mediation and, if that mediation fails or has not resolved the dispute, the landlord or the tenant can apply to the Court for a resolution.
3. The economic impact of the COVID-19 pandemic on the landlord is to be a consideration in the good faith negotiations and the landlord’s ability to grant relief is a consideration in respect of determining any relief to be granted by the Court.
4. If parties reached an agreement to vary the terms or modify the operation of the lease between 30 March 2020 and the date the Regulations come into force (which is to be determined), that agreement remains valid until such date and cannot be altered by the Court. However, if the same agreement had effect beyond the date that the Regulations come into force, the Court can change the operation or effect of that agreement insofar as the agreement operated between 30 March 2020 and 30 September 2020. This allows parties to seek to change their arrangement if it is worse than it would be if it was negotiated under the new Regulations.
5. The new Regulations cover the six-month ‘prescribed period’ from 30 March 2020 to 30 September 2020 for commercial leases entered into before 30 March 2020. Some of the Regulations (largely those relating to prohibitions on termination), apply to tenants that are an ‘affected lessee’. A tenant is an ‘affected lessee’ if:
- the tenant is eligible for, or receiving, a JobKeeper payment in respect of the tenant’s business; and
- the turnover of the business conducted by the tenant at the premises the subject of the commercial lease was less than $50 million in the relevant year (except if the tenant is a corporation that is a member of a group, where the turnover of the group must be less than $50 million in the relevant year).
However, it should be noted that other obligations, such as the requirement for the landlord and tenant to negotiate in good faith applies to all commercial leases, whether or not the tenant is an ‘affected lessee’.
If you have any questions about the new Bill and Regulations, please contact a member of our National Property Team.