NSW leaves door open for large businesses to demand rent relief
The ambiguous wording of NSW legislation on commercial rent relief could have the unintended consequence of exposing landlords to large claims from major retail tenants, senior lawyers warn.
The legislation follows from the federal government’s announcement this month that a mandatory code of conduct for commercial leases would allow smaller and medium sized tenants to seek rent relief proportionate to their lost earnings.
But loose wording in NSW law arguably expands the definition of those tenants affected beyond small and medium businesses with a turnover of less than $50 million and a 30 per cent reduction in turnover, as the federal code intended.
The argument hinges on the use of “impacted lessees” in some sections of the new NSW law while a much broader reference to “a party of a commercial lease” is used elsewhere.
Pauline Tan, partner and practice group head, Australia, real estate at top-tier firm Ashurst, said the drafting of the regulations left the door open for large tenants to be able to argue for rent relief from landlords.
“In NSW, it is unclear whether the legislation applies to all leases, and not just those for small and medium-sized tenants,” she said. “This could have a significant impact on revenue to landlords.”
Vicki Aron, counsel and COVID-19 real estate response team leader at Ashurst, said based on a literal reading of the NSW regulation, all tenants under commercial leases, even those with revenue well in excess of $50 million, could ask their landlords to renegotiate the rent for a six-month period.
“If such a request is made, the landlord must engage in those renegotiations in good faith,” Ms Aron said.
Property lawyers from other firms said while the drafting was “ambiguous” and “clearly rushed”, it would not necessarily cause a major issue.
“It does just create uncertainty, which will create arguments and a headache for everyone,” one law firm partner said.
“But the minister can very easily change it … an amendment wouldn’t have to go through Parliament.”
Kitty Vo, partner at Hall & Wilcox, said: “There is a potential for tenants to interpret the legislation that way but both parties need to view the context and intent of the code and legislation.”
When asked by The Australian Financial Review whether the drafting deliberately opened up the opportunity for all tenants to be able to negotiate, a NSW government spokesperson said the regulation did not require landlords to negotiate rent reductions with tenants that were not the small and medium sized “impacted lessees”.
“The drafting of the regulation reflects what is intended: that landlords are required to negotiate with impacted lessees for a rent reduction having regard to the economic impact of the COVID-19 pandemic and the leasing principles in the National Code of Conduct.”
The states and territories have each gone their own way in implementing the federal government’s mandatory code of conduct.
To date Victoria, Queensland and Western Australia have only passed enabling legislation but have not yet passed regulations. In Victoria it has been made clear that negotiations around rent relief only apply to small and medium sized tenants and the legislation in Western Australia refers to “small commercial leases”.
