How will COVID-19 affect retail and residential tenancies in New South Wales Law in NSW?

Derek Cassidy QC LLM (Syd) and Brian Ralston LLB (Syd)

New legislation has been passed through the NSW Parliament in response to the COVID-19 crisis and now applies to residential tenancies and retail leases. This amends the laws relating to the NSW Civil and Administrative Tribunal (“NCAT”), the Residential Tenancies Act 2010 and Retail Leases Act 1994.

On 24 March 2020 the COVID-19 Legislation Amendment (Emergency Measures) Act 20201 (“the COVID-19 Act”) passed both houses of the NSW Parliament and received assent on 30 March 2020.

What are the relevant provisions which now apply to retail and residential tenancies in NSW?

So far as is relevant to retail and residential tenancies, the COVID-19 Act amends the

  • Civil and Administrative Tribunal Act 2013
  • Residential Tenancies Act 2010 and
  • Retail Leases Act 1994

as set out below.

The impact on Civil and Administrative Tribunal Act 2013

So far as is relevant to tenancy disputes, the COVID-19 Act amends the Civil and Administrative Tribunal Act, under which the NSW Civil and Administrative Tribunal (“NCAT”) is established, to enable:

  • regulations to be made that modify time periods for things done in connection with the tribunal (e.g. applications, appeals) and the practice and procedure of the tribunal,
  • the tribunal (and certain courts) to extend periods for doing things in connection with the tribunal.

The provision applies for a prescribed period of 6 months which may be extended by regulations up to 12 months.

The impact on Residential Tenancies Act 2010 and Retail Leases Act 1994

The COVID-19 Act inserts a new provision2 in the Residential Tenancies Act 2010 (“RT Act”), and a commensurate provision3 in the Retail Leases Act (“RL Act”) which empowers the making of regulations, for the purposes of responding to the emergency caused by the pandemic,

  • to prohibit the recovery of possession of premises by a landlord from a tenant of the premises under the RT Act (or the RL Act as the case may be) in particular circumstances
  • to prohibit the termination of a residential tenancy agreement by a landlord under the RT Act (or the RL Act as the case may be) in particular circumstances
  • to regulate, or prevent enforcement of another right of a landlord under the RT Act (or the RL Act as the case may be) or an agreement relating to the premises
  • to exempt a tenant from the operation of a provision of the RT Act (or the RL Act as the case may be) or any agreement relating to premises

Provisions equivalent to s 229 RT Act are also contained in the COVID-19 Act in respect of the Boarding Houses Act 2012, the Residential (Land Lease) Communities Act 2013 and any other Act relating to the leasing of premises or land for residential purposes.

Provisions equivalent to s 87 RL Act are also contained in the COVID-19 Act in respect of the Agricultural Tenancies Act 1990 and any other Act relating to the leasing of premises or land for commercial purposes.

How is the problem for residential tenancies different from that for business leases?

The authors commentary below contains some suggestions about terms which would be appropriate for the regulations to be enacted pursuant to the amendments that have been made to the RT Act and the RL Act.

For the latter it is that closure or the reduction of trade will destroy or reduce the tenant’s ability to pay rent and ultimately destroy the tenant’s business. There will, perhaps because of the terms of a user covenant in the lease, be a reduction in the number of replacement tenants that could be found. Although there will be many residential tenants who cannot pay their rent, the housing market is such that there may well be plenty of others who can. A real danger, if residential tenancies are terminated, will be an influx of investors who, like shareholders, pick up properties at depressed prices.

The removal of the right to terminate a tenancy or recover possession of the leased premises discriminates against landlords. Under the general law the landlord can terminate a retail lease if the tenant shuts up shop. Or, in the case of residential premises, it can apply to NCAT for a termination order on the ground of abandonment.4 The COVID-19 Act deprives the landlord of this remedy. In both cases the landlord will lose the rent of the premises and be unable to re-let them to a fresh tenant.

The regulations may also prevent the landlord enforcing its statutory rights against the tenant. This does not prevent the tenant from enforcing its rights. On the contrary, the amendments empower the regulations to exempt tenants from the obligation of complying with them.

Residential Tenancies

  1. We suggest that a bald power to prohibit the landlords from terminating tenancies is a clumsy means for protecting the rights of tenants, and landlords.
  2. The vital amendment which the regulations should make to the RT Act should be to abolish the landlord’s power to terminate a periodical tenancy (e.g., a month-to-month tenancy) by the service of a no grounds notice. Periodical tenancies should be terminable by the landlord, like tenancies for a fixed term, only on specified grounds.5 NCAT already has jurisdiction to refuse to make a termination order for a fixed term tenancy if it is not satisfied that, “the breach is in the circumstances of the case sufficient to justify termination.”6 The grounds for exercising this discretion should be expanded to include non-payment of rent directly or indirectly caused by the virus. By directly caused, we mean if the tenant’s impecuniosity is caused by catching the virus, and indirectly by the loss of income as a result of the economic effects of the virus and governments’ attempts to alleviate those effects.
  3. Termination for non-payment of rent should not be abolished as a ground for termination. As has been suggested above the regulation could, to make the matter clear, expressly confirm that the circumstance that the breach was caused by the pandemic is to be taken into account by NCAT in exercising its discretion.7 It would be a matter of balancing the hardship of the tenant caused by the termination against that caused to the landlord by its refusal. In the absence of a mortgage, a pressing need of the landlord to occupy the premises, or evidence of an offer by a fresh tenant to pay the rent, the discretion would necessarily be exercised in the tenant’s favour.
  4. Currently either party can terminate a tenancy on the grounds of hardship.8 The COVID-19 Act arguably enables the regulations to deprive landlords of that right, whilst leaving the tenants’ right unchanged. The loss of rent may well cause hardship to the landlord. This would be particularly so in the case of self-funded retirees and mortgagors. It is unjust for the tenant to retain that power whilst the landlord is deprived of it. At the very least the regulation should provide that it does not affect the landlord’s right to recover possession, or terminate the tenancy, if this would cause it hardship.

Retail tenancies

An appropriate remedy for retail tenancies would be to empower NCAT to determine, or oversee, a system for the assessment of a market rent, making allowance for the reduction in profitability caused by the pandemic. This jurisdiction would apply to both leases for fixed term and periodical tenancies:

  1. This would require the replacement, by the regulations, of any rent variation clause in the lease with a statutorily implied provision for market rent review. The tenant would be entitled to seek an order from NCAT reducing the rent of the leased premises on the basis of a reduction in gross income by reason, direct or indirect, of the virus.9 The tribunal, or the valuer nominated by it, would be required to take primary account of the difference between the tenant’s turnover during the 2019-2020 financial year, and the first 8 months of the 2020-2021 year, and its turnover since 1 March 2020.10 The reduction could continue after the virus has been defeated to give the tenant time for its business to revive. NCAT could have power to order that some or all of the reduction be repaid by the tenant when the regulations expire.
  2. The RL Act does not make any material changes to the general law relating to the termination of fixed term or periodical tenancies. The COVID-19 Act provides for the regulation to prohibit the recovery of possession of premises or termination of retail tenancies “in particular circumstances”.11

No doubt the response of other legislatures to the issue will emerge in the near future. Given that there is a significant degree of similarity in the tenants’ protection Acts of all jurisdictions, we would submit that the suggestions offered above would also apply to those other jurisdictions.

Derek Cassidy QC Brian Ralston

2nd April 2020.

Australian Tenancy Law and Practice is the authoritative guide to the law of landlord and tenant in Australia. Formerly Australian Tenancy Practice and Precedents, this publication was relaunched in 2017 to deliver a revised structure with an emphasis on streamlined research and improved accessibility. Each chapter of Australian Tenancy Law and Practice offers clear and practical commentary on a particular topic of tenancy law, from the general principles governing leases to their formation, termination, and the obligations of each party under them. For each topic, the commentary is supported by expert application of the latest cases in property law. A unique feature of Australian Tenancy Law and Practice is its unrivalled jurisdictional coverage – each state and territory has a dedicated chapter covering both its residential tenancies and retail leases legislation, with a focus on helping practitioners to reach the best outcome for their client, whether landlord or tenant.

Read the full complimentary article here

April 2020 edition of Australian Tenancy Law and Practice Bulletin.

i References are to the paragraphs of Australian Tenancy Law and Practice, Lexisnexis, loose leaf and online.
ii Section 229 Residential Tenancies Act 2010 – inserted by Sch 2 cl 2.17 COVID-19 Act.
iii Section 87 Retail Leases Act 2010 – inserted by Sch 2 cl 2.18 COVID-19 Act.
iv RT Act s 107.
v RT Act s 84.
vi RT Act (NSW) s 87(4)(b).
vii As to the obligation to take something into account see [4.2.330].
viii RT Act ss 93 and 104.
ix See above.
x As to the obligation to take something into account see [4.2.330].
xi RL Act s 87(1)(a)(b).