COVID—19 Relief Period Extended for Commercial Leases

1 October 2020

With effect from today, 1 October 2020, the COVID-19 Emergency Response (Commercial Leases No 2) (Prescribed Period) Variation Regulations 2020 operate to extend the relief measures applying to commercial leases, until 3 January 2021.

We first notified our clients of the changes to the leasing landscape from the COVID-19 pandemic in our earlier Alert available here.

Since that time, the relief measures for commercial leases have been further refined and commenced operation in May 2020 under the COVID-19 Emergency Response (Commercial Leases No 2) Regulations 2020 (“the Regulations”)

In particular, the Regulations prescribe the method for the grant of rent relief under a commercial lease and the protections afforded to certain lessees (that meet a turnover threshold) and that are suffering financial hardship due to COVID-19 economic impacts. The Regulations also adopt the objectives of the Mandatory Code of Conduct – SME Commercial Leasing Principles During COVID-19 published by the National Cabinet in April 2020 (“Mandatory Code”).

By way of a reminder, an overview of the Regulations is:

  • they apply to any commercial lease entered into before 30 March 2020 and extensions or renewals of existing leases granted after that date that are on the same or substantially similar terms;
  • commercial lease is broadly defined and includes any agreement which grants a right of occupancy (either under a lease or licence) over premises where a business, including a ‘retail shop lease’ under the Retail and Commercial Leases Act 1995, is carried on;
  • protections against enforcement action by a lessor are afforded to affected lessees being lessees who are experiencing financial hardship as a result of the COVID-19 pandemic, and who have a turnover of less than $50 million. This includes prohibiting a lessor from terminating a lease where the lessee has failed to pay rent or outgoings;
  • all parties to a commercial lease are obligated, having regard to the economic impacts of COVID-19 and the Mandatory Code, to negotiate in good faith regarding the application of the terms of the lease and the rent payable (an outcome of which may, but need not be, the provision of a deferral or waiver of rent); and
  • where parties to a commercial lease are in dispute, a lessor or affected lessee can refer the matter to the Small Business Commissioner for mediation. If mediation is unsuccessful, a party to the mediation may be entitled to apply to the Court which may make certain orders, having regard to financial hardship suffered by the lessee. The outcome of any mediation or Court order will clarify a lessor’s ongoing enforcement rights.

Initially, the relief measures were to operate until 30 September 2020. However, the period of relief has been extended, in most cases, to 3 January 2021. This means that existing affected lessees and those that become an affected lessee after 1 October, will have the benefit of the relief measures until the beginning of 2021.

In terms of the implications for council leasing, the Regulations are less relevant for peppercorn leases granted by councils to sporting clubs and community groups given the limited financial liability attaching to lessees under these leases. However, they do impact council leases granted to commercial tenants and the extension of their application may necessitate further or new ‘good faith’ negotiations with those tenants.

It is unclear what, if any, legislative measures will be introduced to govern the recovery period beyond 3 January 2021. We continue our ‘watching brief’ and will keep you updated.

In the meantime, it is essential that any negotiated outcome reached between a council and a commercial tenant, is clearly documented, for example, by way of a deed of variation to the lease, to avoid any uncertainty.

For further information or assistance with commercial leases contact our property lawyers: